The financial statements of Eagle Sport Supply are shown in Table 29.15. For simplicity, ?Costs? include interest. Assume that Eagle?s assets are proportional to its sales.

a. Find Eagle?s required external funds if it maintains a dividend payout ratio of 60 percent and plans a growth rate of 15 percent in 2003.

b. If Eagle chooses not to issue new shares of stock, what variable must be the balancing item? What will its value be?

c. Now suppose that the firm plans instead to increase long-term debt only to $1,100 and does not wish to issue any new shares of stock. Why must the dividend payment now be the balancing item? What will its value be?

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Income Statement Sales $950 250 700 Costs EBIT Тахes Net income 200 $500 Balance Sheet, Year-end 2001 2002 2001 2002 $ 900 1,800 $2,700 $2,700 $3,000 Debt $1,000 2,000 $3,000 Assets $2,700 $3,000 Equity Total Total