Exim Inc
Subject:FinancePrice:2.87 Bought7
Exim Inc. reported a return on capital of 12% on its existing assets and a reinvestment rate of 60% in the most recent year. It expects to improve its return on capital to 15% next year on both its existing and new investments, while maintaining its existing reinvestment rate. What will the expected growth rate be next year? Your answer can be a decimal or a whole number. If you input a whole number, do not input the % symbol (input 5 instead of 5%).
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Answer:
Current rate of return = 12%
Retention ratio = 0.69
Expected rate of return (ROC) = 15%
Lets take growth be g
Then,
=ROC (new investments) * Reinvestment rate (current) + (ROC in next year - ROC current year)/ROC of cuurent year
=0.15X0.60+((0.15-0.12)/0.12)
=0.09+0.25
=0.34
Hence the expected growth rate will be 34% for next year.
