Lumberjacks Inc. is a manufacturer of chainsaws. Last year it had revenues of $50 million and net income of $15 million, after depreciation expense of $10 million. Capital expenditures were $16 million its non-cash net working capital was $10 million. The company had a cash balance of $15 million and no debt. It paid 50% of its net income as dividends.

a) Assuming that revenues, capital expenditures and depreciation all grow at 10% per year and that net income grows by 12% per year for the next 4 years, the non-cash net working capital remains at the same percentage of revenues over this period, and the payout ratio remains the same, estimate the cash balance of Lumberjacks at the end of year 4.

b) If Lumberjacks wants to preserve its cash balance at $15 million at the end of the period, what payout ratio will it need to have?

c) Assuming that Lumberjacks does not want to issue new stock, wants to maintain its current payout ratio of 50%, and wants to have a cash balance of $30 million at the end of year 4, what debt/equity ratio will the company need to have over the next 4 years?