Answer :
Answer and Explanation:
a and b The computation of internal growth rate is shown below:-
ROA = Net Income ÷ Total Assets
= $28,000 ÷ $285,000
= 9.82%
Retention Ratio = b = (Net Income - Dividends) ÷ Net Income
= ($28,000 - $3,200) ÷ $28,000
= $24,800 ÷ $28,000
= 88.57%
Internal Growth Rate = (ROA x b) ÷ (1 - ROA x b)
IGR = 9.82% × 88.57% ÷ (1 - 9.82% × 88.57%)
= 9.53%
c. Total Assets (t=1) = Total Assets (t=1) + Net Income - Dividends
= 285,000 + 28,000 - 3,200
= $253,800
ROA = 28,000 ÷ $253,800
= 11.03%
IGR = 11.03% × 88.57% ÷ (1 - 11.03% × 88.57%)
= 10.83%