Question

Your company's most recent income statement and balance sheet are given below:

Income statement ($ million)			Balance sheet ($ million)
Sales	14		Current assets	11.2		Debt	16.8
Costs	11.2		Fixed assets	44.8		Equity	39.2
Net income	2.8		Total assets	56		Total	56

Sales, assets and costs are expected to grow by the same rate next year, while debt will stay constant. The company is expected to pay NO dividends next year.

Part 1

What is the particular growth rate for the next year, at which company will need zero external financing (EFN=0)? What is the internal growth rate?

2. Your company's most recent income statement and balance sheet are given below:

Income statement ($ million)			Balance sheet ($ million)
Sales	19		Current assets	13.2		Debt	19.8
Costs	15.2		Fixed assets	52.8		Equity	46.2
Net income	3.8		Total assets	66		Total	66

Sales, assets and costs are expected to grow by the same rate next year, while debt will stay constant. The company expects to pay out 40% of net income as dividends.

Part 2

What is the particular growth rate for the next year, at which company will need zero external financing (EFN=0)? What is the internal growth rate?

Answer 1