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    External funds needed /Sustainable Growth Rate

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    The Optical Scam Company has forecast a 20 percent sales growth rate for next year. The current financial statement are shown here :

    Income Statement

    Sales $ 38,000,000
    Costs $ 33,400,000
    Taxable Income $ 4,600,000
    Taxes $ 1,610,000
    Net Income $ 2,990,000

    Dividends $1,196,000
    Additional to retained earning $1,794,000

    Balance Sheet

    Assets Liabilities
    ________________________ _____________________________
    Current Assets $ 9,000,000 Short term debt $8,000,000
    Long term debt $6,000,000

    Fixed Assets $ 22,000,000 Common Stock $ 4,000,000
    Accumulated retained earnings $13,000,000
    Total Equity $17,000,000

    Total assets $31,000,000 Total Liabilities $ 31,000,000

    a- Using the equation from the chapter, calculate the external funds needed for next year.
    b-Conduct the firm's pro forma balance sheet for next year and confirm the external funds needed you calculated in part (a).
    c-Calculate the sustainable growth rate for the company.
    d-Can Optical Scam eliminate the need for external funds by changing its dividend policy?
    What other options are available to the company to meet its growth objectives?

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    Solution Summary

    The solution explains how to calculate the amount of external funds needed and the sustainable growth rate