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    Percentage of sales method for calculating external funds

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    Using Percentage of Sales.

    Eagle Sports Supply has the attached financial statements. Assume that Eagle's assets are proportional to its sales.

    a. Find Eagle's required external funds if it maintains a dividend payout ratio of 70 percent and plans a growth rate of 15 percent in 2004.

    b. If Eagle chooses not to issue new shares of stock, what variable must be the balancing item? What will its value be?

    c. Now suppose that the firm plans instead to increase long-term debt only to $1,100 and does not wish to issue any new shares of stock. Why must the dividend payment now be the balancing item? What will its value be?

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    a. Find Eagle's required external funds if it maintains a dividend payout ratio of 70 percent and plans a growth rate of 15 percent in ...

    Solution Summary

    This problem shows how to calculate the external funds required given the percentage of sales method.

    $2.19