The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. Current assets, fixed assets, and short-term debt are proportional to sales. The current financial statements are shown here:
| INCOME STATEMENT | |||||
| Sales | $ | 32,400,000 | |||
| Costs | 28,531,000 | ||||
| Taxable income | $ | 3,869,000 | |||
| Taxes | 1,354,150 | ||||
| Net income | $ | 2,514,850 | |||
| Dividends | $ | 1,005,940 | |||
| Addition to retained earnings | 1,508,910 | ||||
| BALANCE SHEET | |||||||
| Assets | Liabilities and Equity | ||||||
| Current assets | $ | 7,400,000 | Short-term debt | $ | 7,128,000 | ||
| Long-term debt | 3,969,000 | ||||||
| Fixed assets | 17,872,000 | ||||||
| Common stock | $ | 2,941,000 | |||||
| Accumulated retained earnings | 11,234,000 | ||||||
| Total equity | $ | 14,175,000 | |||||
| Total assets | $ | 25,272,000 | Total liabilities and equity | $ | 25,272,000 | ||
a. Calculate the external funds needed for next year using the equation from the chapter. (Do not round intermediate calculations.)
External financing needed $
b-1. Prepare the firm’s pro forma balance sheet for next year. (Do not round intermediate calculations.)
| BALANCE SHEET | |||||||
| Assets | Liabilities and equity | ||||||
| Current assets | $ | Short-term debt | $ | ||||
| Fixed assets | Long-term debt | ||||||
| Common stock | $ | ||||||
| Accumulated retained earnings | |||||||
| Total equity | $ | ||||||
| Total assets | $ | Total liabilities and equity | $ | ||||
b-2. Calculate the external funds needed. (Do not round intermediate calculations.)
External financing needed $
c. Calculate the sustainable growth rate for the company based on the current financial statements. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate?
