7.1. The capital required to finance 7.02% growth is $73.7 million. A target debt ratio of 40%

requires an increase in debt of 40% of $73.7 or $29.50. Furthermore, a net income margin 366 Appendix C Answers to Selected End-of-Chapter Problems of 5% would produce a net income equal to 5% of $1, 102.5 + $77.40 or $59.0, which after a 25% dividend payout leaves $59.0 − $14.75 = $44.2 million of retained earnings.