It is equal to the ratio of the expected increase in retained earnings over the next year to the current asset base.
A) Internal rate of return
B) Internal growth rate
C) Retention rate
D) Dividend payout ratio

Question

Quizplus · Accepted Answer

The formula for internal growth rate is (ROA x retention rate) / (1 - ROA x retention rate), where ROA is return on assets. The internal growth rate refers to the maximum rate of growth a company can achieve without external financing. It is calculated using the current asset base, expected increase in retained earnings over the next year, and retention rate. Therefore, option B (internal growth rate) is the correct answer. Options A (internal rate of return), C (retention rate), and D (dividend payout ratio) are not directly related to the calculation of internal growth rate.

It Is Equal to the Ratio of the Expected Increase