ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.s 2019 financial statements are shown here.Morrissey Technologies Inc.: Balance Sheet as of December 31, 2019Cash $ 180,000 Accounts payable $ 360,000Receivables 360,000 Accrued liabilities 180,000Inventories 720,000 Notes payable 56,000Total current assets $1,260,000 Total current liabilities $ 596,000Long-term debt 100,000Fixed assets 1,440,000 Common stock 1,800,000 Retained earnings 204,000Total assets $2,700,000 Total liabilities and equity $2,700,000Morrissey Technologies Inc.: Income Statement for December 31, 2019Sales $3,600,000Operating costs including depreciation 3,279,720EBIT $ 320,280Interest 20,280EBT $ 300,000Taxes (25%) 75,000Net Income $ 225,000Per Share Data:Common stock price $45.00Earnings per share (EPS) $ 2.25Dividends per share (DPS) $ 1.35Suppose that in 2020, sales increase by 10% over 2019 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2019 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 87.5% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2020 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firms current stock price of $45.a. Construct the forecasted financial statements assuming that these changes are made. What are the firms forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings?b. If the profit margin remains at 6.25% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firms sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.)Challenging Problems 13-14Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.