The Optical Scam Company has forecast an 17 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales. INCOME STATEMENT Sales $ 47,000,000 Costs 37,900,000 Taxable income $ 9,100,000 Taxes 3,185,000 Net income $ 5,915,000 Dividends $ 2,366,000 Additions to retained earnings $ 3,549,000 BALANCE SHEET Assets Liabilities and Equity Current assets $ 15,930,000 Short-term debt $ 12,690,000 Long-term debt 13,190,000 Fixed assets 40,000,000 Common stock $ 4,000,000 Accumulated retained earnings 26,050,000 Total equity $ 30,050,000 Total assets $ 55,930,000 Total liabilities and equity $ 55,930,000 Required: a. Using the equation from the chapter, calculate the external funds needed for next year. (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 1,234,567)) External funds needed $ _ c. Calculate the sustainable growth rate for the company. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Sustainable growth rate % d. Suppose Optical Scam eliminates its dividend entirely. What is the new EFN? External funds needed $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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Question

The Optical Scam Company has forecast an 17 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales.

INCOME STATEMENT

Sales			$	47,000,000
Costs				37,900,000

Taxable income			$	9,100,000
Taxes				3,185,000

Net income			$	5,915,000

Dividends	$	2,366,000
Additions to retained earnings	$	3,549,000

BALANCE SHEET
Assets	Liabilities and Equity
Current assets	$	15,930,000	Short-term debt	$	12,690,000
			Long-term debt		13,190,000
Fixed assets		40,000,000

			Common stock	$	4,000,000
			Accumulated retained earnings		26,050,000

			Total equity	$	30,050,000

Total assets	$	55,930,000	Total liabilities and equity	$	55,930,000

Required:

a.	Using the equation from the chapter, calculate the external funds needed for next year. (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 1,234,567))

External funds needed

$ _______

c.	Calculate the sustainable growth rate for the company. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Sustainable growth rate

________%

d.	Suppose Optical Scam eliminates its dividend entirely. What is the new EFN?

External funds needed

$ ______

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