Painting debt ratio will affect its internal growth rate

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Internal Growth Rate Last year, Al's Painting, Inc., reported an ROE of 30 percent. The firm's debt-to-equity was 2.50 times, sales were $20 million, the capital intensity was 1.5 times, and dividends paid to common stockholders were $500,000. The firm has no preferred stock outstanding. This year, Al's Painting plans to decrease its debt-to-equity ratio to 2.00 times. The change will not affect sales, total assets, or dividends paid, however, it will reduce the firm's profit margin to 10 percent. Use the DuPont equation to determine how the change in Al's Painting debt ratio will affect its internal growth rate.

Reference no: EM13748636

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