External Funds Needed - The Optical Scam Company has forecast a 20 percent sales growth rate for next year. The current financial statements are shown here:
Income statement
Sales
$30,400,000
Costs
26,720,000
Taxable income
$3,680,000
Taxes
1,288,000
Net income
$2,392,000
Dividends
$956,800
Addition to retained earning
1,435,200
Balance Sheet
Assets
Liabilities and equity
Current assets
$7,200,000
Short-term debt
$6,400,000
Long-term debt
4,800,000
Fixed assets
17,600,000
Common stock
$3,200,000
Accumulated retained earning
10,400,000
Total equity
$13,600,000
Total assets
$24,800,000
Toatal liabilities and equity
1. Using the equation from the chapter, calculate the external funds needed for next year.
2. Construct the firm’s pro forma balance sheet for next year and confirm the external funds needed that you calculated in part (a).
3. Calculate the sustainable growth rate for the company.
4. 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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