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Using Percentage of Sales. Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales

INCOME STATEMENT, 2003

Sales $950
Costs 250
Interest 50
Taxes 150
Net Income $500

BALANCE SHEET, YEAR-END
2002 2003 2002 2003
Assets $2,700 $3,000 Debt $900 $1,000
Equity 1,800 2,000
Total $2,700 $3,000 Total $2,700 $3,000

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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Using Percentage of Sales. Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales.

INCOME STATEMENT, 2003
Sales $950
Cost $250
Interest $50
Taxes $150
Net Income $500
BALANCE SHEET, YEAR-END
...

Solution Summary

Describe dividend payment.

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