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Cullumber, Inc., expects to add $2,756,720 to retained earnings and currently has total assets of $28,460,000....

Cullumber, Inc., expects to add $2,756,720 to retained earnings and currently has total assets of $28,460,000. If the company has the ability to borrow up to $1 million, how much growth can the firm support if it is willing to borrow to its maximum capacity? (Round answer to 1 decimal place, e.g. 5.2%.)

Growth rate enter the growth rate in percentages rounded to 1 decimal place %
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Answer #1

Addition to Retained Earnings = $2,756,720
Total Assets = $28,460,000
Additional Fund Needed = $1,000,000

Additional Fund Needed = Total Assets * Growth Rate - Addition to Retained Earnings
$1,000,000 = $28,460,000 * Growth Rate - $2,756,720
$3,756,720 = $28,460,000 * Growth Rate
Growth Rate = $3,756,720 / $28,460,000
Growth Rate = 0.1320 or 13.20%

So, the firm can support a growth rate of 13.20% if it is willing to borrow to its maximum capacity.

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