The Optical Scam Company has forecast a sales growth rate of 18 percent for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales.

a. Using the equation from the chapter, calculate the external funds needed for next year.

b. Construct the firm’s pro forma balance sheet for next year and confirm the external funds needed you calculated in part (a).

c. Calculate the sustainable growth rate for the company.

d. Can the company eliminate the need for external funds by changing its dividend policy? What other options are available to the company to meet its growth objectives?

Transcribed Image Text:

INCOME STATEMENT Sales $34,700,000 Costs 27,100,000 Taxable income $ 7,600,000 Taxes 1,748,000 Net income $ 5,852,000 Dividends $1,650,000 Addition to retained earnings 4,202,000 BALANCE SHEET Assets Liabilities and Equity Current assets $11,280,000 Short-term debt $ 5,410,000 Long-term debt $ 8,080,000 Fixed assets 33,700,000 Common stock $ 3,100,000 Accumulated retained earnings 28,390,000 Total equity $31,490,000 Total assets $44,980,000 Total liabilities and equity $44,980,000