## 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)