INCOME STATEMENT,
INCOME STATEMENT, 2007SalesCostNet income $2,5001,875$ 625BALANCE SHEET, YEAR END Assets 2006$3,000 2007$3,500 Total $3,000 $3,500 DebtEquityTotal 2006$1,0002,000$3,000 2007$1,1672,333$3,500 1. If sales increase by 20% in 2008 and the company uses a strict percentage of salesforecasting model (meaning that all items on the income statement and balancesheet also increase by 20%), what must be the balancing item? What will be itsvalue?2. If the dividend payout ratio is fixed at 50%, calculate the required total externalfinancing for growth in 2008 of 20% and 25%.3. What is the maximum possible growth rate if the payout ratio remains 50%percent and (a) no external debt or equity is to be issued (internal growth rate); (b)the firm maintains a fixed debt ratio but issues no equity (sustainable growthrate)?.