Exercise 4

Required:

a. If Major Manuscripts, Inc. decides to maintain a constant debt-equity ratio, what rate of growth can it maintain assuming that no additional external equity financing is available?

b. How sustainable growth contributes towards the growth of a corporation? Discuss

Major Manuscripts, Inc. 2012 Income Statement Net sales $17,100 Cost of goods sold 11,200 Depreciation _1,650 Earnings before interest and taxes 4,250 Interest paid 350 Taxable income $3,900 Taxes 1,300 Net income $2,600 Dividends $950 Major Manuscripts, Inc. 2012 Balance Sheet 2012 2012 Cash $1,040 Accounts payable $3,350 Accounts rec. 700 Long-term debt 2,780 Inventory 7,500 Common stock 10,000 Total 9,240 Retained earnings 4,510 Net fixed assets 11.400 Total assets $20,640 Total liabilities & equity $20,640