Refer to the following financial statements and answer the questions:

Answer the following questions:

1. Determine which items varied in constant proportion to sales between 20x6 and 20x7.
2. Determine the rate of growth in sales that was achieved from year 20x6 to 20x7.
3. What was the firm's return on equity for 20x7? Can you calculate for 20x6?
4. What was the firm's external (additional) funding requirement determined to be for 20x? How was the funding obtained? (hint: compare the changes in debts and equities).

Balance sheet Assets Cash Receivables Inventory Property, plant and equipment Total assets Liabilities Payables Shortterm debt (10 % interest) Longterm debt (7% interest) Sh areholders' equity Common stock Retained earnings Total liabilities and equity 20x6 $300,000 $200,000 $700,000 $1,800,000 $3,000,000 $300,000 $500,000 $800,000 $1,100,000 $300,000 $3,000,000 20x7 $375,000 $250,000 $875,000 $2,250,000 $3,750,000 $375,000 $989,882 $900,000 $1,100,000 $385,118 $3,750,000 Financial statement analysis Income sta c 20x6 20x7 Sales $1,200,000 $1,500,000 Cost of goods sold $750,000 $937,500 Gross margin $450,000 $562,500 Operating expense Advertising expense $50,000 $62,500 Rent expense $72,000 $90,000 Sales commission $48,000 $60,000 Utilities $15,000 $18,750 EBIT $265,000 $331,250 Interest expense $106,000 $113,000 Taxable income $159,000 $218,250 Tax (35%) $55,650 $76,388 Net Income $103,350 $141,863 Dividend (40% payout) $41,340 $56,745 Change in return earnings $62,010 $85,118