The most recent income statement and balance sheet for the T. McGraw Corporation are as follows:

T. MCGRAW CORPORATION

Financial Statements

Income Statement

Sales $10,000

• Costs 7,500

Taxable Income $ 2,500

• Taxes (34%) 850

Net Income $ 1,650

Retained earnings $ 660

Dividends $ 990

Balance Sheet

Current assets $ 5,000 Total debt $ 6,000

Fixed assets 10,000 Owners Equity 9,000

Total $15,000 Total $15,000

McGraw is forecasting a 20% increase in sales for the coming year; assets vary directly with sales, while liabilities and equity do not (this condition applies for 5.6 only).

(5.1) profit margin (PM)

(5.2) retention ratio (R)

(5.3) return on assets (ROA)

(5.4) return on equity (ROE)

(5.5) debt equity ratio (D/E).

(5.6) Use the ratios computed to calculate the external financing needed (EFN).