Using the income statement and balance sheet below and assuming that sale will grow 25% in the next year:

a) Find the additional funds ABC will need to accommodate this sales growth.

b) Calculate the sustainable growth rate for ABC using the current year information.

Remember you can calculate the prior year retained earnings from the income statement and dividend information.

ABC Corporation

Income Statement for Year Ending 12/31

($000)

Sales

$18,000

Operating Expenses

(15,000)

EBIT

3,000

Interest

(500)

EBT

2,500

Taxes @ 40%

(1,000)

Net income

1,500

Cash Dividends @ 40%

(600)

ABC Corporation

Balance Sheet for the Year Ending 12/31

($000)

Cash and Marketable Securities

$1,500

Accounts Payable

$1,800

Accounts Receivable

2,500

Bank Loan

1,800

Inventories

2,200

Accrued Liabilities

1,200

Total Current Assets

6,200

Total Current Liabilities

4,800

Long-Term Debt

2,800

Common Stock

2,400

Fixed Assets, Net

6,800

Retained Earnings

3,000

Total Assets

$13,000

Total Liabilities and Equity

$13,000