TABLE 3.1 Financial Statements for R&E Supplies, Inc., December 31, 2014-2017 ($ thousands) Net sales Cost of goods sold Gross profit Income Statements 2014 2015 2016 2017* $11,190 $13,764 $16,104 $20,613 9,400 11,699 13,688 17,727 1,790 2,065 2,416 2,886 Expenses: General, selling, and administrative expenses 1,019 1,239 1,610 2,267 Net interest expense 100 103 110 90 Earnings before tax 671 Tax Earnings after tax 302 $ 369 723 696 529 325 313 238 $ 398 $ 383 $ 291 Balance Sheets Assets Current assets: Cash and securities Accounts receivable Inventories Prepaid expenses Total current assets Net fixed assets Total assets Liabilities and Owners' Equity Current liabilities: $ 671 $ 551 $ 644 $ 412 1,343 1,119 1,789 1,376 2,094 1,932 2,886 2,267 14 12 15 18 3,147 128 $ 3,275 3,728 124 $ 3,852 4,685 295 5,583 287 $ 4,980 $ 5,870 Bank loan $ 50 $ 50 $ 50 $ 50 Accounts payable Current portion long-term debt Accrued wages Total current liabilities 1,007 1,443 2,426 3,212 60 50 50 100 5 7 10 18 1,122 1,550 2,536 3,380 Long-term debt 960 910 860 760 Common stock 150 150 150 150 Retained earnings 1,043 1,242 1,434 1,580 Total liabilities and owners' equity $ 3,275 $ 3,852 $ 4,980 $ 5,870 TABLE 3.5 Forecasting with a Spreadsheet: Pro Forma Financial Forecast for R&E Supplies, Inc., December 31, 2018 ($ thousands) A B D 1 2 Year 3 Net sales 2017 Actual 2018 2019 $20,613 4 Growth rate in net sales 25.0% 5 Cost of goods sold/net sales 86.0% 6 Gen., sell., and admin. expenses/net sales 12.0% 7 Long-term debt $ 760 $660 8 Current portion long-term debt $ 100 $100 10 Tax rate 9 Interest rate 11 Dividend/earnings after tax 12 Current assets/net sales 10.0% 45.0% 50.0% 29.0% 13 Net fixed assets 14 Current liabilities/net sales $280 14.5% 15 Owners' equity 16 INCOME STATEMENT $ 1,730 17 18 Year 19 Net sales Equations 2018 Forecast 2018 Forecast 2019 $25,766 20 Cost of goods sold 21 Gross profit 22 Gen., sell, and admin. exp. 23 Interest expense 24 Barnings before tax 25 Tax 26 Barnings after tax 27 Dividends paid 28 Additions to retained earnings 29 30 BALANCE SHEET =B3+B3*C4 -C5-C19 =C19-C20 = C6C19 =C9* (C7+CS+C40) =C21-C22-C23 =C10* C24 =C24-C25 =C11*C26 =C26-C27 31 Current assets 32 Net fixed assets 33 Total assets 34 =C12* C19 7,472 =C13 280 =C31 +C32 7,752 35 Current liabilitics =C14* C19 3,736 36 Long-term debt =07 660 37 Owners' equity 38 Total liabilities and owners' = B15+ C28 1,808 = C35+ C36 + C37 6,204 39 equity 40 EXTERNAL FUNDING REQUIRED =C33-C38 $1,548 Table 3.1 presents R&E Supplies' financial statements for the period 2014 through 2017, and Table 3.5 presents a pro forma financial forecast for 2018. Use the information in these tables to answer the following questions. a. Calculate R&E's sustainable growth rate in each year from 2015 through 2018. Assume the dividend payout ratio was the same in 2015-17 as forecasted in 2018. (Round your answers to 1 decimal place.) Year Sustainable Growth Rate 2015 % 2016 % 2017 % 2018 %