Question 3Total: 30 Marks

(a)What is the significance of the internal growth rate? the sustainable growth rate?

(5 Marks)

(b)Assume that ANG is currently operating at 75% capacity. All costs/expenses/income and net working capital vary directly with sales/revenue. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required, if any, if no new equity is raised and sales/revenue are projected to increase by 15%?Other comprehensive profit, net of tax will also increase by the 15%. (20 Marks)

NOTE:

Tax Rate must be calculated (2 decimal places)

Assume a dividend payout ratio remains the same as in 2018

Pro forma statements are to be prepared (Round all figures to the nearest dollar)

(c)Based on your answer from (b) above, how can ANG obtain the external financing needed (if necessary), or, if the company has excess financing, how can they utilize this? (5 Marks)