Please answer in excel sheet or word . no Overview 3. External Funds Needed The
ID: 2813428 • Letter: P
Question
Please answer in excel sheet or word .
no Overview 3. External Funds Needed The Optical Scam Company has forecast a sales growth rate of 15 perce nt for next year. The current financial statements are shown here: Income Statement $25,380.000 Sales Costs Taxable income Taxes Net income $3,745,000 1,498.000 2,247,000 $ 786,450 Addition to retained earnings 1,460,550 Balance Sheet Assets Liabilities and Owners' Equit Current assets 7.200,000 Short-term debt Fixed assets 17600,000 $ 5.200,000 6,000,000 Long-term debt 3,200,000 10.400.000 $13,600,000 $24,800,000 Common stock Accumulated retained earnings Total equity Total assets $24,800,000 Total liabilities and equity a. Using the equation from the chapter, calculate the external funds needed for next year Construct the fim's pro forma balance sheet for next year and confirm the extema funds needed that you calculated in part (a). external c. Calculate the sustainable growth rate for the company d. Can the company eliminate the need for external funds by changing its divth policy? What other options are available to the company to meet its grow objectives?Explanation / Answer
a) The equation for EFN is: EFN = (A0/S0)*(S1-S0)-(L0/S0)*(S1-S0)-(PM)*(S1)*(b) where S0 = Current Sales, S1 = Forecasted Sales = S0(1 + g), g = the forecasted growth rate is Sales, A0 = Assets (at time 0) which vary directly with Sales, L0 = Spontaneous Liabilities (at time 0) which vary directly with Sales, PM = Profit Margin = (Net Income)/(Sales), and b = Retention Ratio = (Addition to Retained Earnings)/(Net Income). Substituting known values, we have EFN = (24800000/25380000)*(25380000*1.15-25380000)-*(5200000/25380000)*(25380000*1.15-25380000)-(2247000/25380000)*(25380000*1.15)*0.65 = 1260368 [b = 1460550/2247000 = 65%] b) BALANCE SHEET Current Year Basis of projection Proforma Current assets 7200000 28.3688% of sales 8280000 Net fixed assets 17600000 69.3459% of sales 20240000 TOTAL ASSETS 24800000 28520000 Current liabilities 5200000 20.4886% of sales 5980000 Long term debt 6000000 6000000 Common stock 3200000 3200000 Retained earnings 10400000 1679633 12079633 24800000 27259633 24800000 EFN 1260368 INCOME STATEMENT Sales 25380000 +15% 29187000 COGS 21635000 85.24% of sales 24880250 Taxable income 3745000 4306750 Taxes (40%) 1498000 1722700 Net Income 2247000 2584050 Dividend (35%) 786450 904418 Retained earnings 1460550 1679633 c) Sustainable growth rate = ROE*b/(1-ROE*b) = (2247000/13600000)*0.65/((1-(2247000/13600000)*0.65)) = 12.03% d) No, by changing the dividend policy the company cannot eliminate the need for EFN. It can, however, reduce the quantum of EFN by reducing the dividend payout from the existing 35%. Other options are: *Issuing new stock, debt etc. *Leasing of assets