Morrissey Technologies Inc.'s 2019 financial statements are shown here.

Morrissey Technologies Inc.: Balance Sheet as of December 31, 2019

Cash $180,000 Accounts payable $360,000

Receivables 360,000 Notes payable 56,000

Inventories 720,000 Accrued liabilities 180,000

Total current assets $1,260,000 Total current liabilities $596,000

Long-term debt 100,000

Fixed assets 1,440,000 Common stock 1,800,000

Retained earnings 204,000

Total assets $2,700,000 Total liabilities and equity $2,700,000

Morrissey Technologies Inc.: Income Statement for December 31, 2019

Sales $3,600,000

Operating costs including depreciation 3,279,720

EBIT $320,280

Interest 20,280

EBT $300,000

Taxes (25%) 75,000

Net Income $225,000

Per Share Data:

Common stock price $45.00

Earnings per share (EPS) $2.25

Dividends per share (DPS) $1.35

Suppose that in 2020, sales increase by 15% 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 85.5% 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 13%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.

A. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Do not round intermediate calculations. Round your answers to the nearest cent.

Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2020

2019 2020

Sales	$3,600,000		$ NEED ANSWER
Operating costs (includes depreciation)	3,279,720		NEED ANSWER
EBIT	$320,280		$ NEED ANSWER
Interest expense	20,280		NEED ANSWER
EBT	$300,000		$ NEED ANSWER
Taxes (25%)	75,000		NEED ANSWER
Net Income	$225,000		$ NEED ANSWER
Dividends (60%)	$ NEED ANSWER		$ NEED ANSWER
Addition to retained earnings	$ NEED ANSWER		$ NEED ANSWER

Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2020

Assets
Cash	$180,000		$
Accounts receivable	360,000
Inventories	720,000
Fixed assets	1,440,000
Total assets	$2,700,000		$
Liabilities and Equity
Payables + accruals	$540,000		$
Short-term bank loans	56,000
Total current liabilities	$596,000		$
Long-term bonds	100,000
Total liabilities	$696,000		$
Common stock	1,800,000		NEED ANSWER
Retained earnings	204,000		NEED ANSWER
Total common equity	$2,004,000		$
Total liabilities and equity	$2,700,000		$

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 firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Do not round intermediate calculations. Round your answer to two decimal places.