Morrissey Technologles Inc.: Balance Sheet as of December 31,2015 Accounts payable $360,000 Cash $180,000 180,000 Receivables 360,000 Accrued liabilities 56,000 $ 596,000 Notes payable 720,000 $1,260,000 Inventories Total current Total current liabilities assets 100,000 Long-term debt 1.440,000 Common stock 1,800,000 Fixed assets 204,000 $2,700,000 Retained earnings Total assets $2,700,000 Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2015 Sales Operating costs including depreciation $3,600,000 3,279,720 $ 320,280 20,280 $300,000 EBIT Interest EBT Taxes (40%) 120,000 $ 180,000 Net Income Per Share Dáta: Common stock price $45.00 Earnings per share (EPS) Dividends per share (DPS) $ 1.80 $ 1.08 Suppose that in 2016, sales increase by 10% over 2015 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2015 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 87.5% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2016 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45. a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? b. If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.)