How do you calculate internal growth if you are given ROE 20%, Payout ratio 40%, and equity debt ratio 60%

internal growth = ROE x (1-DPO)
= 20% x (1-0.4)
= 12%

Internal growth = ROE x (1-Payout Ratio)
= 20% x (1-40%)
= 12%

Ignore both previous answers, as the don't take into account payout ratio ;)

IGR=ROE*E/D*(1-POR)

IGR=0.2*0.6*(1-0.4)=0.072=7,2%

*as they don't take into account the dept/equity ratio.. (which in this case is same as payout ratio)

Internal growth rate= (retained earning ratio x net income) / asset

as we know that equity to debt ratio is 60%, thus, asset=2.67xequity (since asset= debt+ liability.)

ROE=20%, which makes Net Income=0.2xequity.

putting all those equations to the formula, we get:
internal growth rate =(1-40%) x (0.2xequity)/(2.67xequity).
internal growth rate=60% x 0.075=4.5%

Hope that helps.

Internal growth rate= (retained earning ratio x net income) / asset

as we know that equity to debt ratio is 60%, thus, asset=2.67xequity (since asset= equity+ debt)

ROE=20%, which makes Net Income=0.2xequity.

putting all those equations to the formula, we get:
internal growth rate =(1-40%) x (0.2xequity)/(2.67xequity).
internal growth rate=60% x 0.075=4.5%

Hope that helps.