Al the end of the last 12-month period, Romano s Italian Foods had net income and ending equity for the company of $16.68 million and $115 million, respectively.
Romano's declared a $7.5 million dividend for the year. Using internally generated funds, Romano's can grow its equity by approximately:
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A. B. C.A
To determine the approximate growth rate in equity for Romano's Italian Foods, we need to consider the effect of the dividend on equity.
The net income for the year is given as $16.68 million. This net income contributes to the increase in equity. However, a portion of the net income is distributed as dividends, which reduces the equity.
The dividend declared for the year is $7.5 million. This dividend reduces the equity by the same amount. Therefore, the net increase in equity is equal to the net income minus the dividend, which is $16.68 million - $7.5 million = $9.18 million.
We can express the growth rate in equity using the following formula:
Growth rate = (Net increase in equity / Beginning equity) * 100
Given that the ending equity for the company is $115 million, we can calculate the beginning equity as follows:
Beginning equity = Ending equity - Net increase in equity = $115 million - $9.18 million = $105.82 million
Now we can calculate the growth rate in equity:
Growth rate = ($9.18 million / $105.82 million) * 100 ≈ 8.67%
Rounding this to the nearest tenth, we find that Romano's Italian Foods can grow its equity by approximately 8.7% per year. None of the provided answer choices match this value exactly, so the closest option is A. 8.0% per year.