Abbreviated financial statements for Archimedes Levers are shown in the table below. Assume that sales increase by 10% in 2014 and all other items, including debt, increase correspondingly.
Income Statement
Sales $4,000
Costs, including interest 3,500
Net Income $500
Balance Sheet, Year-end
2013 2012 2013 2012
Assets $3,200 $2,700 Debt $1,200 $1,033
Equity 2,000 1,667
Total $3,200 $2,700 Total $3,200 $2,700
A.) If the payout ratio is set at 50% and no external debt or equity is to be issued, what is the maximum possible growth rate for Archimedes?
B.) If the payout ratio is set at 50% and the firm maintains a fixed debt ratio but issues no equity, what is the maximum possible growth rate for Archimedes?