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Stone Roses Co. Balance Sheet for Dec. 31, 1999 Cash $50 Accounts payable $100 Inventory $150 Notes payable 100 Fixed assets $600 Long-term debt 350

Stone Roses Co.
Balance Sheet for Dec. 31, 1999
Cash $50 Accounts payable $100
Inventory $150 Notes payable 100
Fixed assets $600 Long-term debt 350
Equity 250
Total assets $800 Total liabilities & equity $800
Income statement for 1999
Sales $800
Costs 600
EBT $200
Taxes (34%) 68
Net income $132

Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve?

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