Introduction to Finance

a. 
What will this year’s net income equal?
b. 
How much will be added to stockholder’s equity this year?
c. 
If the D/E ratio remains constant, how much external debt can 
the fi rm raise this year?
d. 
What is this year’s level of assets?
e. 
What is the change in assets between this year and the last?
f. 
The change in assets computed in (e) has to be fi nanced. Assum-
ing a constant D/E ratio, compute the fi rm’s sustainable growth rate. 
(Hint: Add your answers to (b) and (c), set them equal to the solution to 
(e), and solve for g.)
15. 
Below are items from recent fi nancial statements from Moss and 
Mole Manufacturing:
Current Balance Sheet (all numbers are in thousands)
Total assets 
$192,000
Stockholder’s equity
$44,000
Total liabilities 
$148,000
Current Income Statement
Sales
$260,000
Net income 
$37,500
Dividends paid 
$18,750
a. 
Find M&MM’s internal growth rate.
b. 
Find their sustainable growth rate.
16. 
The following information is from the fi nancial statements of Bagle’s 
Biscuits:
Current Balance Sheet (all numbers are in millions)
Total assets 
$134.9
Stockholder’s equity 
$51.7
Total liabilities 
$83.2
Current Income Statement
Sales $137.5
Net income 
$8.0
Dividends paid 
$3.2
a. 
Find Bagle’s internal growth rate.
b. 
Compute Bagle’s sustainable growth rate.
17. 
Income statements for Mount Lewis Copy Centers for 2016 and 
2017 appear below. Data are in thousands of dollars.
2016
2017
Sales
$20,000
$21,000
Cost of goods sold
10,000
10,500
Leases
2,500
3,000
Depreciation
2,000
2,100
EBIT
$5,500
$5,400

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598
C H A PT E R 1 8 Capital Structure and The Cost of Capital
Interest
3,000
3,200
EBT
$2,500
$2,200
Taxes (30%)
750
660
Net income
$1,750
$1,540