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Let's break down the problem based on the information provided:

### Given:
- **Net income:** $2,000
- **Sales:** $100,000
- **Dividend paid:** $320
- **Total assets:** $100,000
- **Debt financed:** $30,000

The questions asked are:
1. **Sustainable growth rate**: This is the growth rate a firm can achieve using only internally generated equity (retained earnings), without issuing new debt or equity.
2. **Debt issued next year at sustainable growth rate**: This will show how much debt the firm would need to issue if it grows at the sustainable growth rate.
3. **Maximum possible growth rate without debt issuance**: This is the maximum growth rate the firm can achieve without using any additional debt.

I'll work through the formulas needed to answer these questions:

### Part (a) Sustainable Growth Rate:
The formula for sustainable growth rate (SGR) is:

\[
SGR = \frac{ROE \times (1 - Dividend \ Payout \ Ratio)}{1 - (ROE \times (1 - Dividend \ Payout \ Ratio))}
\]

Where:
- **ROE (Return on Equity)** = $ \frac{Net \ Income}{Equity} $
- **Dividend Payout Ratio** = $ \frac{Dividends}{Net \ Income} $

Let's calculate the sustainable growth rate.

### Part (b) Debt issued next year:
For this, we can use the firm's sustainable growth rate and the current debt ratio to estimate the debt the firm needs to issue next year.

### Part (c) Maximum possible growth rate without issuing debt:
This is simply the firm's growth rate when it retains all its earnings and does not issue any new debt. The formula here will be:

\[
g_{\text{max}} = ROE \times (1 - Dividend \ Payout \ Ratio)
\]

Let me calculate these values step by step.### Calculations:

1. **Sustainable Growth Rate (SGR):**  
   \[
   SGR = 2.5\% 
   \]

2. **Maximum Possible Growth Rate Without Issuing Debt:**  
   \[
   g_{\text{max}} = 2.4\% 
   \]

Next, I will calculate how much debt would need to be issued next year at the sustainable growth rate for part (b).3. **Debt Issued Next Year at the Sustainable Growth Rate:**
   \[
   \text{New Debt} = \$737.70
   \]

To summarize:
- Sustainable growth rate: **2.5%**
- Debt issued next year at the sustainable growth rate: **\$737.70**
- Maximum possible growth rate without issuing debt: **2.4%**

Would you like further details or have any questions?

Here are 5 related questions to explore:
1. How does the sustainable growth rate change with different dividend policies?
2. What would happen if the firm increases its debt financing to achieve higher growth?
3. How is the debt-to-equity ratio affected by growing at the sustainable growth rate?
4. How does issuing more equity influence the sustainable growth rate?
5. Can the firm maintain the sustainable growth rate indefinitely?

**Tip:** Sustainable growth assumes the firm doesn't change its financial leverage, so increasing debt or equity beyond planned ratios will alter growth capacity.

Plank’s Plants had net income of $2,000 on sales of $100,000 last year. The firm paid a dividend of $320. Total assets were $100,000, of which $30,000 was financed by debt. What is the firm's sustainable growth rate? If the firm grows at its sustainable growth rate, how much debt will be issued next year? What would be the maximum possible growth rate if the firm did not issue any debt next year?

Learn how to calculate the sustainable growth rate, debt issuance, and maximum possible growth rate without debt for Plank's Plants. This problem involves key finance concepts like Return on Equity (ROE) and Dividend Payout Ratio. Suitable for undergraduate business or finance students.

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