Problem:
Cross Town Express has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000. The firm paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity.
Required:
Question: At the sustainable rate of growth, how much new total debt must the firm acquire?
Note: Be sure to show how you arrived at your answer.