tglassman@chubb.com on 11/03/98 07:14:31 AM
To: studygroup5b@lists.casact.org
cc: (bcc: Sarah Kemp/PRCG/OPS/HMC)
Subject: Fall 98 - MC Question 18
Since the CAS discussion forum is slow, I'll post my question here:
I believe the answer to question 18 is B.
Internal Growth Rate = Plowback Ratio * ROE * Equity/Assets
Plowback = (1-Div Payout) = .40
Net Income = REV-CGS-INT-TAX = 2000-1600-40-126 = 234
Equity = Assets - Outstanding Debt = 1000-500 = 500
ROE = Net Income/Equity = 234/500 = .468
Equity/Assets = 500/1000 = .5
Therefore: Internal Growth Rate = .4*.468*.5 = .0936
Please comment.