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
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