Cumina Stores is an all-equity-funded retailer looking for some guidance on dividend policy. Over the last 3 years, the company has seen its revenues and net income increase and has maintained a dividend payout ratio of 40% of net income:

Year3 years ago2 years agoMost recent year

Revenues$ 1,000$ 1,200$ 1,500

Net Income$ 100$ 120$ 150

Depreciation$ 50$ 60$ 75

Over the same three year period, Cumina Stores has seen its cash balance decline from $ 60 million to $ 20 million.

a. Based on the information provided, estimate how much the firm reinvested in long-term assets and working capital over the 3 - Year period. (2 points)

b. Assume now that revenues, net income and depreciation are expected to grow 10% a year for the next two years. Working capital is expected to remain 25% of total revenues over the period and capital expenditures will be 200% of depreciation each year. If the firm wants to maintain its dividend payout ratio at 40% and increase its cash balance back to $ 60 million, how much debt (as a percent of reinvestment) will the firm have to take on for this to be feasible? (4 points)