Cross Town Express has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000

Cross Town Express has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000. The firm paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity. At the sustainable rate of growth, how much new total debt must the firm acquire?    A.  $0 B.  $6,311 C.  $6,989 D.  $7,207 E.  $8,852 Dividend payout ratio = $7,560/$14,000 = 0.54 Retention ratio = 1 - 0.54 = 0.46 Sustainable growth = [($14,000/$45,000) × 0.46]/{1 - [($14,000/$45,000) × 0.46]} = 0.167012 Projected total assets = $98,000 × 1.167012 = $114,367.22 Current debt = $98,000 - $45,000 = $53,000 Projected equity = $45,000 + ($14,000 × 1.167012 × 0.46) = $52,515.56 New debt required = $114,367.22 - $53,000 - $52,515.56 = $8,852

57.	The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio. What is the internal growth rate?    A.  6.50 percent B.  6.75 percent C.  6.97 percent D.  7.24 percent E.  7.38 percent Internal growth rate = (0.09 × 0.75)/[1 - (0.09 × 0.75)] = 7.24 percent

58.

The Dog House has net income of $3,450 and total equity of $8,600. The debt-equity ratio is 0.60 and the payout ratio is 30 percent. What is the internal growth rate?    A.  14.47 percent B.  17.78 percent C.  21.29 percent D.  29.40 percent E.  33.33 percent Total assets = $8,600 × (1 + 0.60) = $13,760 Return on assets = $3,450/$13,760 = .250727 Internal growth = [.250727 × (1 - 0.30]/[1 - (.250727 × (1 - 0.30)] = 21.29 percent