MC Qu. 62 Major Manuscripts, Inc. is currently operating at maximum ... Major Manuscripts, Inc. 2009 Income Statement Net sales 17,100 Cost of goods sold 11,200 Depreciation 1650 Earnings before interest and taxes 4250 Interest paid 350 Taxable Income 3900 Taxes 1300 Net income 2600 Dividends 950 Major Manuscripts, Inc. 2009 Balance Sheet 2009 2009 Cash 1040 Accounts payable 3350 Accounts rec. 700 Long-term debt 2780 Inventory 7500 Common stock 10000 Total 9240 Retained earnings 4,410 Net fixed assets 11400 Total assets 20640 Total liabilities & equity 20640 Major Manuscripts, Inc. is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 15 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 Also, where do you get the estimated growth in internal equity