# Question: Derive equation 18 8 for the internal growth rate Let S

Derive equation 18-8 for the internal growth rate. Let S = last year's sales revenue; A = last year's total assets; D = last year's total liabilities; E = last year's stockholder's equity; NI/S =the firm's (presumably constant) profit margin, the ratio of net income to sales; g = the firm's expected sales growth rate; RR = the firm's (presumably constant) retention ratio.

Using these symbols and relationships you are familiar with, find the following answers:

a. What will this year's net income equal?

b. How much will be added to stockholder's equity this year?

c. What is this year's level of assets?

d. What is the change in assets between last year and this year?

e. The change in assets computed in part (d) has to be financed. Assuming only internal financing is available, compute the firm's internal growth rate. (Hint: Set your answers to part (b) and (d) equal to each other, and solve for g.)

Using these symbols and relationships you are familiar with, find the following answers:

a. What will this year's net income equal?

b. How much will be added to stockholder's equity this year?

c. What is this year's level of assets?

d. What is the change in assets between last year and this year?

e. The change in assets computed in part (d) has to be financed. Assuming only internal financing is available, compute the firm's internal growth rate. (Hint: Set your answers to part (b) and (d) equal to each other, and solve for g.)

**View Solution:**## Answer to relevant Questions

In business, ethical dilemmas or situations occur frequently. Laws and regulations exist to define unethical behavior. However, the practicing of high quality ethical behavior often goes beyond just meeting laws and ...What are the six principles of finance? Determine the size of the M1 money supply using the following information. Currency ........... $700 billion Money market mutual funds . $2,000 billion Demand deposits ....... $300 billion Other checkable deposits ... $300 ...Using the same notation used in the previous problem, now assume that the firm will raise some funds externally in order to keep the firm's debt-to-equity (D/E) ratio constant. a. What will this year's net income equal? b. ...Here's a recent income statement from TC1 Telecommunications Services, Inc. (numbers are in millions) Sales...................................... $53.7 Costs of goods sold.............. ...Post your question