If the payout ratio is set at 50 and the firm maintains a

Reference no: EM13617925

Abbreviated financial statements for Archimedes Levers are shown in the table below. Assume that sales increase by 10% in 2014 and all other items, including debt, increase correspondingly.

Income Statement

Sales $4,000

Costs, including interest 3,500

Net Income $500

Balance Sheet, Year-end

2013 2012 2013 2012

Assets $3,200 $2,700 Debt $1,200 $1,033

Equity 2,000 1,667

Total $3,200 $2,700 Total $3,200 $2,700

A.) If the payout ratio is set at 50% and no external debt or equity is to be issued, what is the maximum possible growth rate for Archimedes?

B.) If the payout ratio is set at 50% and the firm maintains a fixed debt ratio but issues no equity, what is the maximum possible growth rate for Archimedes?

Reference no: EM13617925

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