Abbreviated financial statements for Archimedes Levers are shown in the table be

Question

Abbreviated financial statements for Archimedes Levers are shown in the table below. Assume sales increase by 10% in 2014 and all other items, including debt, increase correspondingly.

If the payout ratio is set at 50% and no external debt or equity is to be issued, what is the maximum possible growth rate for Archimedes? (Round your answer to 1 decimal place.)

If the payout ratio is set at 50% and the firm maintains a fixed debt ratio but issues no equity, what is the maximum possible growth rate for Archimedes? (Round your answer to 2 decimal places.)

Income Statement    Sales $ 4,000       Costs, including interest 3,500       Net income $ 500   

Explanation / Answer

a)50%

b)43%

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