Major Manuscripts, Inc. 2009 Income Statement Net sales 7600 Cost of goods sold 6,765 Depreciation 190 Earnings before interest and 645 taxes Interest paid 20 Taxable income 625 Taxes 218 Net income 407 Dividends 183 Cash Accounts rec Inventory Total Net fixed assets Total assets Major Manuscripts, Inc. 2009 Balance Sheet 2009 2,200 Accounts payable 850 Long-term debt 2.400 Common stock 5,450 Retained earnings 3.090 8.540 Total liabilities & equity 2009 1.650 270 2,500 4.120 8.540 Major Manuscripts, Inc. is currently operating at maximum capacity. All costs, assets, and current liabilitles vory directly with sales. The tax rate and the dividend payout ratio will remain constant. How much odditional debt is required if no new equity is raised and sales are projected to increase by 10 percent? HINT: Start by calculating the growth in assets. Now we need to figure out how we will pay for the growth. Start by subtracting off from that needed amount of new assets the estimated growth in internal equity (that it, the new retained earnings that will be used to purchase some of those new assets). Since current liabilities also grow proportional to sales in this problem, also subtract off the estimated growth in current liabilities (used to finance the purchase of current assets). Whatever amount is left over is what we must raise in new, long-term debt. Multiple Choice 22 713 241 O 443 o 297