Using the same notation used in the previous problem, assume the firm will raise some funds…

Using the same notation used in the previous problem, assume the firm will raise some funds externally to keep the firm’s debt/equity (D/E) ratio constant.

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 firm 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 financed. Assuming a constant D/E ratio, compute the firm’s sustainable growth rate. (Hint: Add your answers to (b) and (c), set them equal to the solution to (e), and solve for g.)