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27. EFN Define the following: S = Previous years sales A = Total assets E = Total equity g = Projected growth in sales PM = Profit margin b = Retention (plowback) ratio Assuming that all debt is constant, show that EFN can be written as EFN = PM(S)b + [A PM(S)b] g Hint: Asset needs will equal A g. The addition to retained earnings will equal PM(S)b (1 + g).

28. Sustainable Growth Rate Based on the results in Problem 27, show that the internal and sustainable growth rates can be calculated as shown in equations 3.24 and 3.25. Hint: For the internal growth rate, set EFN equal to zero and solve for g. 29. Sustainable Growth Rate In the chapter, we discussed one calculation of the sustainable growth rate as Sustainable growth rate = __R_O__E_ _ _b_ _ 1 ROE b 30. Sustainable Growth Rate Use the sustainable growth rate equations from the previous problem to answer the following questions. Grendl, Inc., had total assets of $410,000 and equity of $265,000 at the beginning of the year. At the end of the year, the company had total assets of $460,000. During the year the company sold no new equity. Net income for the year was $75,000 and dividends were $32,000. What is the approximate sustainable growth rate for the company? What is the exact sustainable growth rate? What is the approximate sustainable growth rate if you calculate ROE based on the beginning of period equity? Is this number too high or too low? Why?

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