Background information for the next two problems. Solar Home Inc. is interested in estimating its sustainable sales growth rate. Last year revenues were $1 million, the net profit was $50,000, the investment in assets was $750,000, payables and accruals were $100,000, and equity at the end of the year was $450,000 (i.e., beginning of year equity of $400,000 plus retained profits of $50,000). The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future.
1. The sustainable sales growth rate for Solar is ________.
a. 12.5%
b. 11.1%
c. 10.0%
d. 7.1%
2. If Solar Home's sales are expected to growth at a 30 percent rate next year, the estimated additional funds needed next year using the AFN formula would be ______.
a. $300K
b. $130K
c. $65K
d. 0