The Barnsdale Corporation has the following ratios: A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and dividend payout ratio = 0.45, or 45%. Sales last year were $100 million. Assuming that these ratios will remain constant, use the AFN equation to determine the firms self-supporting growth ratein other words, the maximum growth rate Barnsdale can achieve without having to employ nonspontaneous external funds.

Suppose Barnsdales financial consultants report (1) that the inventory turnover ratio (sales/inventory) is 3, compared with an industry average of 4, and (2) that Barnsdale could reduce inventories and thus raise its turnover ratio to 4 without affecting its sales, profit margin, or other asset turnover ratios. Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during each of the next 2 years if sales grow at a rate of 20% per year.