Question

You’ve collected the following information about Erna, Inc.:

Sales	=	$	305,000
Net income	=	$	18,200
Dividends	=	$	7,000
Total debt	=	$	65,000
Total equity	=	$	96,000

What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Sustainable growth rate             %
  
Assuming it grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Additional borrowing            $
  
What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Growth rate             %

Answer 1

Calculate the growth rate and additional borrowing as follows:

Formulas: