Rosco Inc.

Income Statement

For the year ended December $20$XX

Sales $5,000$

Cost of goods sold $3,479$

Other Expenses $621$

Earnings before Interest and Taxes $900$

Interest Expense $100$

Earnings before Taxes $800$

Income Taxes $30\%240$

Net Income $560$

Amount of Dividends paid

$252$

Earnings Retained $308$

Rosco Inc.

Balance Sheet

As at December $20$XX

Earnings before Taxes $500$ Accounts Payable $200$

Accounts receivable $100$ Long Term Debt $500$

Inventory $300$ Common Shares $1,500$

Net Fixed Assets $2,000$ Retained Earnings $700$

Total Assets $2,900$ Total Liability and Equity $2,900$

Additional Information:

The company is planning to grow by $20\%$ next year. Assuming that interest expense remains unchanged, and the tax rate is lowered to $28\%,$ use the percent of sales method to answer the questions below. All assets and Accounts payable will grow proportionately but assume debt and common shares are initially unchanged.

Required:

$1)$ How much external financing will be needed in the next year to finance the growth.

$2)$ If the fixed assets are currently operating at $90\%$ capacity, how much will the EFN from part $1$ change by$?$

$3)$ Calculate the internal growth and sustainable growth rates. Explain what they mean.