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Question One (3 Marks) Sustainable Growth. Nessa Corporation realized a net income of K2,000 on sales of K40,000 last year. The firm distribute K500 as

Question One (3 Marks) Sustainable Growth.

Nessa Corporation realized a net income of K2,000 on sales of K40,000 last year.

The firm distribute K500 as dividends. It had total assets of K100,000, of which K40,000 was financed

by debt.

a. What is the firms sustainable growth rate?

b. If the firm grows at its sustainable growth rate, how much debt will be issued next year?

c. What would be the maximum possible growth rate if the firm did not issue any debt next

year?

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