Question 19.ss.4: Northwood Corp. has a dividend payout ratio of 60 percent, r...

Northwood Corp. has a dividend payout ratio of 60 percent, return on equity of 14.5 percent, total assets of $11,500,450, and equity of $4,652,125. Calculate the firm’s internal rate of growth (IGR).

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We calculate Northwood’s internal growth rate as follows:

\begin{matrix} IGR&=&Plowback \ ratio \times ROE \times Measure \ of \ leverage \\ \\ &=&0.40 \times 0.145 \times \frac{\$4,652,125}{\$11,500,450} \\ \\ &=&0.0235, \ or \ 2.35 \% \end{matrix}

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