Now consider again the accounting information for HomeNet (HN) corresponding to the end of its most recent fiscal year end (December 2018), which is repeated below.

a) Assume first that all the assumptions required to derive the formulas for gi and g* hold. i) Use a spreadsheet to verify that if the firm grows at gi then EFN = 0. What are the complete pro-forma balance sheet and income statement for 2019? ii) Use a spreadsheet to calculate EFN if the firm grows at g*. Then complete the pro-forma balance sheet for 2019 assuming that the firm cannot raise equity or short-term debt.

Home Net's Balance Sheet as of Dec 2018 2017 2018 Assets Current assets Fixed assets Total assets 448.0 932.8 1380.8 504.4 950.0 1454.4 Liabilities and shareholders' equity Current liabilities Long-term debt Common stock Retained earnings Total liabilities and shareholders' equity 100.0 771.5 459.0 50.3 1380.8 111.7 682.3 497.0 163.4 1454.4 Home Net's Income Statement for 2018 Revenues Costs (70% of revenues) Depreciation EBIT Interest (10% of beg long-term debt) Taxable income Tax @ 40% Net income Dividends (1/3 of NI) Addition to retained earnings 2,200.0 1,540.0 300.0 360.0 77.2 282.9 113.1 169.7 56.6 113.1 4 Home Net's Balance Sheet as of Dec 2018 2017 2018 Assets Current assets Fixed assets Total assets 448.0 932.8 1380.8 504.4 950.0 1454.4 Liabilities and shareholders' equity Current liabilities Long-term debt Common stock Retained earnings Total liabilities and shareholders' equity 100.0 771.5 459.0 50.3 1380.8 111.7 682.3 497.0 163.4 1454.4 Home Net's Income Statement for 2018 Revenues Costs (70% of revenues) Depreciation EBIT Interest (10% of beg long-term debt) Taxable income Tax @ 40% Net income Dividends (1/3 of NI) Addition to retained earnings 2,200.0 1,540.0 300.0 360.0 77.2 282.9 113.1 169.7 56.6 113.1 4