Question

You’ve collected the following information about Erna, Inc.: Sales = $ 305,000 Net income = $...

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             %

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Answer #1

Calculate the growth rate and additional borrowing as follows:

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