The financial statements of Eagle Sport Supply are shown in Table. For simplicity, Costs include interest. Assume

The financial statements of Eagle Sport Supply are shown in Table. 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% and plans a growth rate of 15% in 2012.

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 valuebe?

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TABLE Sales Costs Pretax income Taxes (at 28.6%) Net income Income Statement $950 250 700 200 $500 Balance Sheet, Year-end 2011 $1,000 2,000 $3,000 2010 S900 1,800 52,700 2011 2010 Assets Debt Equity Total Total 3,000 $2,700