Between years 0 and 5, what will be the changes in the companys debt and stock amounts? Explain why these changes will reduce the to reduce the debt/equity ratio from 0.53 to 0.30. (136)

	0 actual	1 assumption	2 assumption	3 assumption	4 assumption	5 assumption
Sales growth		10%	10%	10%	10%	10%
Costs of goods sold/Sales	50%	50%	50%	50%	50%	50%
Interest rate on debt	10%	10%	10%	10%	10%	10%
Annual growth rate in SG&A		3%	3%	3%	3%	3%
Current assets/Sales	15%	15%	15%	15%	15%	15%
Current liabilities/Sales	8%	8%	8%	8%	8%	8%
Net fixed assets/Sales	77%	77%	77%	77%	77%	77%
Depreciation rate	13%	13%	13%	13%	13%	13%
Interest earned on cash and marketable securities	8%	8%	8%	8%	8%	8%
Tax rate	35%	35%	35%	35%	35%	35%
Dividend payout ratio	35%	35%	35%	35%	35%	35%
D/E ratio	53%	45%	40%	30%	30%	30%
	Initial (year 0) debt/equity ratio: =B43/SUM(B44:B45)
Year	0	1	2	3	4	5
Income statement
Sales	1,000	1,100	1,210	1,331	1,464	1,611	<--=F18*(1+G3)
Costs of goods sold	(500)	(550)	(605)	(666)	(732)	(805)	<--=-G18*G4
Gross profit	400	550	605	666	732	805	<--=SUM(G18:G19)
Gross profit %	40%	50%	50%	50%	50%	50%	<--=G20/G18
Selling, general and administrative	(100)	(103)	(106)	(109)	(113)	(116)	<--=F22*(1+G6)
Interest payments on debt	(32)	(32)	(31)	(29)	(29)	(32)	<--=-G5*AVERAGE(F43,G43)
Interest earned on cash and marketable securities	6.4	6.4	6.4	6.4	6.4	6.4	<--=G11*AVERAGE(F34,G34)
Depreciation	(100)	(110)	(121)	(133)	(146)	(161)	<--=-G10*G39
Profit before tax	174	312	353	400	451	503	<--=G20+SUM(G22:G25)
Taxes	(61)	(109)	(124)	(140)	(158)	(176)	<--=-G26*G12
Profit after tax (net profit)	113	203	229	260	293	327	<--=G27+G26
Net profit %	11%	18%	19%	20%	20%	20%	<--=G28/G18
Dividends	(40)	(72)	(81)	(92)	(103)	(115)	<--=-G13*G28
Retained earnings	73	131	149	168	190	212	<--=G30+G28
Balance sheet
Cash and marketable securities	80	80	80	80	80	80	<--=F34
Current assets	150	165	182	200	220	242	<--=G18*G7
Fixed assets
At cost	1,070	1,257	1,463	1,689	1,938	2,212	<--=G39-G38
Accumulated depreciation	(300)	(410)	(531)	(664)	(811)	(972)	<--=F38+G25
Net fixed assets	770	847	932	1,025	1,127	1,240	<--=G9*G18
Total assets	1,000	1,092	1,193	1,305	1,427	1,562	<--=G39+G35+G34
Current liabilities	80	88	97	106	117	129	<--=G18*G8
Debt	320	312	313	276	302	331	<--=G14*SUM(G44:G45)
Stock	450	411	353	324	220	103	<--=G40-G42-G43-G45
Accumulated retained earnings	150	281	430	598	787	999	<--=F45+G31
Total liabilities and equity	1,000	1,092	1,193	1,305	1,427	1,562	<--=SUM(G42:G45)
Calculating the return on invested capital (ROIC)
	0 actual	1 assumption	2 assumption	3 assumption	4 assumption	5 assumption
Net operating profit after tax (NOPAT)	130	219	246	275	308	343	<--=G28-SUM(G23:G24)*(1-G12)
Invested capital	840	924	1,016	1,118	1,230	1,353	<--=G39+G35-G42
Return on invested capital (ROIC)		26.08%	26.58%	27.06%	27.50%	27.92%	<--=G50/F51