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Income Statement and Balance Sheets

The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.

Income Statement ($ millions) Balance Sheet ($ millions)
Sales
32.00
Current assets
16

Costs
28.97
Fixed assets
16

Gross profit
3.03
Total assets
32

Taxes
1.03

Net income
2.00
Current debt
10

Long-term debt
4

Dividends
1.40
Total debt
14

Retained earnings
0.60
Common stock
14

Ret. earnings
4

Total liabilities and equity
32

The current financial policy of the Optimal Scam Company includes

Dividend-payout ratio (d) = 70%
Debt-to-equity ratio (L) = 77.78%
Net profit margin (P) = 6.25%
Assets-sales ratio (T) =1

Determine Optimal Scam's need for external funds next year.
Construct a pro forma balance sheet for Optimal Scam.
Calculate the sustainable growth rate for the Optimal Scam Company.
How can Optimal Scam change its financial policy to achieve its growth objective?

Solution Summary

The solution explains how to calculate the amount of external financing needed and prepare proforma financial statements.

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