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Use the following information to answer questions 10 and 11. Cardinal Company is eager to expand. Their current earnings are $1,000; total assets are $5,000;
Use the following information to answer questions 10 and 11. Cardinal Company is eager to expand. Their current earnings are $1,000; total assets are $5,000; debt is $2,000; Equity is $2,000; Inventory is $2,500. Currently they pay half their earnings out in the form of dividends. 10) Since it is unclear whether Cardinal will be able to utilize capital markets to raise capital, Cardinal may have to rely on expanding without access to outside capital. The maximum internal growth rate for Cardinal is the following: A) 9.09% B) 10.00% C) 11.11% D) 12.50% E) 33.33% 11) If Cardinal does have access to capital markets, but desires to keep its debt to equity ratio constant, then the maximum sustainable growth rate becomes the following: A) 11.11% B) 22.22% C) 25.00% D) 33.33% E) 50.00%
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