Deep Falls Timber's internal growth rate is 8.57%.
We can compute the internal growth rate of Deep Falls Timber by dividing the company's retained earnings by the average combined equity of all stockholders for the given accounting period.
The firm's internal growth rate shows the highest level of growth that the firm can achieve without obtaining outside financing,
Net sales = $642,100
Net income = $50,800
Dividends paid = $12,700
Retained earnings = $38,100 ($50,800 - $12,700)
Total assets = $658,000
Total equity = $444,400
Total liabilities = $213,600 ($658,000 - $444,400)
Total liabilities and equity - $658,000
The internal growth rate = Retained Earnings/Total equity
= 8.57% ($38,100/$444,400 x 100)
Thus, Deep Falls Timber's internal growth rate is 8.57%.
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