quiz_solve01

quiz_solve01 - FNCE 3010 (Durham). Fall 2007. Quiz 1. 1....

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Unformatted text preview: FNCE 3010 (Durham). Fall 2007. Quiz 1. 1. Use these financial statements to answer the questions below: Balance Sheet (2005) Assets Liabilities & Equity Current Assets 4000 Current Liabilities 3000 Fixed Assets 5000 Long-term debt 2000 Total Assets 9000 Owners Equity 4000 Total Liabilities and Equity 9000 Income Statement (2005) Sales 5000 Costs (including interest) 3000 EBT 2000 Taxes 800 Net Income 1200 Assumptions: Costs and asset requirements increase in proportion to sales Current liabilities do not increase with sales Dividend payout is 60% of net income. Dividend payout ratio and tax rate remain constant. Answer the following questions (show your work): 1. What is the maximum growth rate the firm can achieve without taking on any additional debt? Solution: ROA = 1200/9000 = .1333 b = .4 IGR = (b x ROA) / ( 1 - b x ROA ) = .05633 2. What is the maximum growth rate the firm can achieve while maintaining the present debt- equity ratio?...
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quiz_solve01 - FNCE 3010 (Durham). Fall 2007. Quiz 1. 1....

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