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    eschottl's Avatar
    eschottl Posts: 1, Reputation: 1
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    #1

    Oct 6, 2007, 03:34 PM
    Internal growth rate
    How do you calculate internal growth if you are given ROE 20%, Payout ratio 40%, and equity debt ratio 60%
    ake_finance's Avatar
    ake_finance Posts: 19, Reputation: 1
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    #2

    Oct 7, 2007, 09:34 AM
    internal growth = ROE x (1-DPO)
    = 20% x (1-0.4)
    = 12%
    jazi16488's Avatar
    jazi16488 Posts: 1, Reputation: 0
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    #3

    Oct 4, 2011, 01:01 AM
    Internal growth = ROE x (1-Payout Ratio)
    = 20% x (1-40%)
    = 12%
    tibzilla's Avatar
    tibzilla Posts: 2, Reputation: 1
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    #4

    Dec 11, 2011, 11:27 AM
    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%
    tibzilla's Avatar
    tibzilla Posts: 2, Reputation: 1
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    #5

    Dec 11, 2011, 11:28 AM
    *as they don't take into account the dept/equity ratio.. (which in this case is same as payout ratio)
    akw86's Avatar
    akw86 Posts: 2, Reputation: 1
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    #6

    Jul 21, 2012, 01:48 AM
    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.
    akw86's Avatar
    akw86 Posts: 2, Reputation: 1
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    #7

    Jul 21, 2012, 01:50 AM
    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.
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