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A planner's percentage of sales model forecasts that sales will grow by 20% next year. If costs of goods sold are proportionate at 70% of sales, then what is the growth rate of costs of goods sold?

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If a non-dividend-paying firm bases its growth assumptions on the sustainable rate of growth and shows positive net income, then the pro forma statement must reflectA) an increase in fixed assets irrespective of the firm's current operating capacity.B) an increase in both sales and the debt-equity ratio.C) both an increase in the total asset turnover and in the equity multiplier.D) a constant debt-equity ratio and an increase in retained earnings.E) increases in fixed assets, the debt-equity ratio, and the number of shares outstanding.

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Which of the following statements is CORRECT?a. If a firm has enough retained earnings to fund its capital budget, then there is no need to estimate a cost of equity when determining the WACC.b. The component cost of preferred stock is expressed as rp(1 - T). This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes.c. A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm's stockholders could themselves earn a return on earnings if they were paid out rather than retained and reinvested.d. Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm's before-tax and after-tax costs of debt will both be equal to the interest rate on the firm's currently outstanding debt, which was issued during the past 5 years.e. No cost should be assigned to retained earnings because the firm does not have to pay anything to raise them-they are generated as cash flows by operating assets that were raised in the past, hence they are "free."

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