Use the information for Morgan Construction Company from Problems 19.35 and 19.36. Assume that equity accounts do not vary directly with sales, but change when retained earnings change or new equity is issued. The company’s long-term debt-to-equity ratio is approximately 90 percent, and its equity-to-total assets ratio is about 43 percent. The company management wishes to increase its equity-to-total assets ratio to at least 50 percent. Management is willing to reduce the company’s payout ratio, but will retain no more than 40 percent of earnings. The company will raise any additional funds needed, including funds for expansion, by selling new equity. No new long-term debt will be issued. Prepare pro forma statements to reflect this new scenario.

a. What is the external financing needed to accommodate the expected growth?

b. What is the firm’s internal growth rate?

c. What is the firm’s sustainable growth rate?

d. How much new equity will the firm have to issue?

e. What is the firm’s new equity ratio and debt-to-equity ratio?