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 firms return on equity for 20x7?
4. What was the firms external (additional) funding requirement determined to be for 20x7? How was the funding obtained? (hint: compare the changes in debts and equities).
5. If we assume the growth rate for 20x8 would be 20%, the sales, expenses, payable will grow with the same rate as the sales, and tax rate and dividend payout ratio are the same, how much would be the additional funding needed? (hint: Pls study the results on 20x7).

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