Problem 2-1

MCK, Inc. has sales of 100,000; total assets of 64,500; and a debt-equity ratio of 1.40. If its return on equity is 15%, what is its net income? (You may, or may not, find the Du Pont Identity helpful.)

Problem 2-2

You have collected the following information about a company: Sales = 500,000 Net Income = 44,650 Dividends = 23,650 Total Debt = 230,000 Total Equity = 155,000

A] What is the sustainable growth rate for the company? B] If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? C] What growth rate could be supported with no additional outside financing at all?