Cross Town Express has sales of $132,000, net income of $12,600, total assets of $98,000, and total equity of $45,000. The firm paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity. At the sustainable rate of growth, how much new total debt must the firm acquire?

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Dividend payout ratio = $7,560/$12,600 = 0.60Retention ratio = 1 - 0.60 = 0.40Sustainable growth = [($12,600/$45,000) F1F1F1S1F1F1F10 0.40]/{1 - [($12,600/$45,000) F1F1F1S1F1F1F10 0.40]} = 0.126126Projected total assets = $98,000 F1F1F1S1F1F1F10 1.126126 = $110,360.35Current debt = $98,000 - $45,000 = $53,000Projected equity = $45,000 + ($12,600 F1F1F1S1F1F1F10 1.126126 F1F1F1S1F1F1F10 0.40) = $50,675.68Net debt required = $110,360.35 - $53,000 - $50,675.68 = $6,685

Cross Town Express Has Sales of $132,000, Net Income of $12,600