Sustainable growth rate

Imagine that Gill Bates works with the following planning data for setting up a new venture:

 

Sales/Assets = 1.5, (1,5)

Interest rate r = 0.05,

EBIT/Sales = 0.1,

Tax rate t = 0.3,

Retention rate R = 0.7,

 

Initial Equity = 500 000 $,

 

No further equity investment possible,

 

Actual sales forecast for period 6: 1,487,812.57$.

 

Consider the following statements about the intended venture and

 

Decide whether the statements are true or false. Explain your Answer!

 

1. A sustainable growth rate, given the forecast of actual sales is correct, would require debt financing of 180 000$.
2. The sustainable growth rate with debt adjustment is then 8.82 percent.