Go back to problem 12 and build a financial planning model based on percentage of sales for
Question:
Go back to problem 12 and build a financial planning model based on percentage of sales for Eagle Sports Supply using a spreadsheet similar to Figure 19.2.
a. Assume 2013 sales grow at the sustainable growth rate calculated in problem 13 and produce the pro forma income statement and balance sheet. Is the forecasted capital structure consistent with 2012 capital structure?
b. Assuming 2013 sales grow at the internal growth rate calculated in problem 13, produce the pro forma income statement and balance sheet. Is the required external financing zero, the same as what you found in problem 13? Is the forecasted net income the same as the forecasted net income in problem 13? What is going on?
c. Calculate an alternative growth rate using the following formula.
The ROE is the same as the one used in the other growth rate formulas. It is based on beginning equity, 2012 net income/2011 equity. Use this new growth rate to produce the 2013 pro forma statements. What is the required external financing? How does it compare to the result in 34(b)?
Capital StructureCapital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Internal Growth Rate
"An internal growth rate (IGR) is the highest level of growth achievable for a business without obtaining outside financing, and a firm's maximum internal growth rate is the level of business operations that can continue to fund and grow the...
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim