Problem: The Optical Scam Company has forecast a 20 percent sales growth rate for next year. The current financial statement are shown here:
Income Statement
Sales $ 38,000,000
Costs $ 33,400,000
___________
Taxable Income $ 4,600,000
Taxes $ 1,610,000
___________
Net Income $ 2,990,000
Dividends $1,196,000
Additional to retained earning $1,794,000
Balance Sheet
Assets Liabilities
________________________ _____________________________
Current Assets $ 9,000,000 Short term debt $8,000,000
Long term debt $6,000,000
Fixed Assets $ 22,000,000 Common Stock $4,000,000
Accumulated retained earnings $13,000,000
____________
Total Equity $17,000,000
Total assets $31,000,000 Total Liabilities $31,000,000
Q1. Using the equation, calculate the external funds needed for next year.
Q2. Conduct the firm’s pro forma balance sheet for next year and confirm the external funds needed you calculated in part (1).
Q3. Calculate the sustainable growth rate for the company.
Q4. Can Optical Scam eliminate the need for external funds by changing its dividend policy?
Q5. What other options are available to the company to meet its growth objectives?