1. Suppose the firm retains 28% of earnings, while assets and costs maintain a constant percentage of sales. If the firm is producing at full capacity, what is the internal growth rate?

2. Suppose that assets and costs maintain a constant ratio to sales. The maintain a constant percentage of sales. The firm retains 30% of earnings. If the firm is producing at full what is the maximum growth rate, assuming no equity sales, that will maintain a constant debt-equity ratio?

Stone Roses Co. Balance Sheet for Dec. 31, 1999 Cash $50 $100 Inventory $150 100 Fixed assets $600 Accounts payable Notes payable Long-term debt Equity Total liabilities & equity 350 250 Total assets $800 $800 Income statement for 1999 Sales Costs EBT Taxes (34%) Net income $800 600 $200 68 $132