The internal growth rate is 7.97% Approximately
The internal growth rate is computed as shown below:
= ROA x ( 1 - payout ratio ) / [ 1 - ( ROA x payout ratio) ]
= 0.09 x ( 1 - 0.18 ) / [ 1 - ( 0.09 x 0.18 ) ]
= 0.0738 / 0.9262
= 7.97% Approximately
An internal growth rate (IGR) is the best degree of growth potential for a commercial enterprise with out acquiring outdoor financing. A firm's most inner increase rate is the extent of business operations that may maintain to fund and grow the corporation with out issuing new equity or debt.
The IGR assumes that operations can be entirely self-funded by way of the corporation's retained profits. In evaluation, the sustainable increase price (SGR) includes the effect of external financing, however the current capital structure is kept steady.
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