2. (25 points) Read the HBR document titled "Financial Statement Forecasting". Explain clearly how the numbers marked with red arrows on the last page are obtained. (Hint: only 2 to 3 sentences will suffice). 3. (25 points) Asset Needs, RE, $ Increase in Asset Requirements G Projected Addition to RE Projected Growth in Sales % In the above diagram, Paddington Inc.'s asset increase requirements in relation to its projected addition to retained earnings are given at each projected growth rate. Financial objective: No new stocks will be issued. Dividend payout ratio will stay the same. a) If the planned growth rate for next year is less than G, is it possible for the company to have a lower D/E ratio next year compared to this year? Why/Why not? b) If planned growth rate is more than G, is it possible for the company to keep its D/E ratio next year the same as this year? Why/Why not? c) If the company plans to grow at rate G, is it possible to keep D/E ratio the same as this year? Why/Why not? 4. (25 points) Suppose a firm maintains a positive retention ratio and keeps its debt-equity ratio constant every year. When sales grow by 20%, the firm has a negative projected EFN. a) Can you tell, with certainty, that the sustainable growth rate is greater than/equal to / less than 20%? Why/Why not? b) Do you know with certainty that the internal growth rate is greater than/equal to less than 20%? Why/Why not?