Problem #1Radical Co.Balance SheetCash $ 50 Accounts payable $100Inventory $150

Problem #1Radical Co.Balance SheetCash $ 50 Accounts payable $100Inventory $150 Notes payable 100Fixed assets $600 Long-term debt 350Equity 250Total assets $800 Total liabilities & equity $800Radical Co.Income statementSales $800Costs 600EBT $200Taxes (34%) 68Net income $132a. Suppose that current assets costs and accounts payable maintain a constant ratio to sales. The firm retains 40% of earnings. i. If the firm is producing at full capacity what is the total external financing needed if sales increase 25% assuming fixed assets increase proportionately with sales (4 marks)?ii. If the firm is producing at only 90% capacity describe how this would impact your answer. You dont need to do a calculation but it may help you to explain your reasoning. (3 marks)b.. Suppose the firm wishes to maintain a constant debt-equity ratio retains 60% of net income and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve? (8 marks)

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