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A firm with 30% total debt ratio, total assets of $10 million, and an ROE of 11% has been paying out 60% of earnings to shareholders in the form of dividends. Sales are expected to increase by 15% this year, a faster growth rate than usual. Will external funding be required under these conditions? If so how much? Will the debt-equity ratio remain constant? Show your calculations

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A firm with 30% total debt ratio, total assets of $10 million, and an ROE of 11% has been paying out 60% of earnings to shareholders in the form of dividends. Sales are expected to increase by 15% this year, a faster growth rate than usual. Will external funding be required under these conditions? If so how much? Will the debt-equity ratio remain constant? Show your calculations

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Total assets = $10 million
Debt = 30% of assets=3 million
Equity = 7 million
ROE=11%
Earnings after Tax = Equity * ROE = 11%*7 million = 0.77 ...

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