90.2K

Verified Solution

Link Copied!

1. What is the highest rate at which the firms sales can grow without the need to issue any additional debt or equity?

2. If the firm is operating at full capacity and issues debt while keeping the debt/equity ratio of the firm unchanged, what external financing is needed to support the 20 percent growth rate in sales?

The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. MPOSE TOURS, INC. 2015 Income Statement Sales Costs other expenses Earnings before interest and taxes Interest expense Taxable income Taxes Net income Dividends Addition to retained earnings $752,500 585,600 15,400 $151,500 11,340 $140,160 49,056 $91,104 $27,331 63,773 MOOSE TOURS, INC. Balance sheet as of December 31, 2015 Assets Liabilities and Owners' Equity Current Assets Current Liabilities Cash $21,632 Accounts payable $58,140 Accounts receivable 34,799 Notes payable 14,535 Inventory 74,300 Total $72,675 Total $130,731 Long-term debt $135,000 Owner's equity Fixed assets Common stock and paid- $115,000 in surplus Net plant and equipment $353,120 Retained earnings 161,176 Total $276,176 Total assets $483,851 Total liabilities and owner's $483,851 equity

Answer & Explanation Solved by verified expert

See Answer