Question

The Optical Scam Company has forecast an 17 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales.

INCOME STATEMENT

Sales			$	44,000,000
Costs				35,200,000
Taxable income			$	8,800,000
Taxes				3,080,000
Net income			$	5,720,000
Dividends	$	1,430,000
Additions to retained earnings	$	4,290,000

BALANCE SHEET
Assets			Liabilities and Equity
Current assets	$	14,040,000	Short-term debt	$	10,560,000
			Long-term debt		11,060,000
Fixed assets		37,000,000
			Common stock	$	3,700,000
			Accumulated retained earnings		25,720,000
			Total equity	$	29,420,000
Total assets	$	51,040,000	Total liabilities and equity	$	51,040,000

    

External funds needed

$

   

  

Sustainable growth rate

%

   

Suppose Optical Scam eliminates its dividend entirely. What is the new EFN?

   

New External funds needed

$

Answer 1

INCOME STATEMENT INCOME STATEMENT 51.480,000 44,000,000 Sales Sales 35.200,000 41,184,000 Costs Costs 8.800.000 Taxable income Taxable income 10.296.000 3.603.600 Taxes 3.080,000 Taxes Net income 5,720,000 692.400 Net income Dividends Dividends 1.673.100 1,430,000 Additions to Additions to retained earnings 4,290,000 retained earnings 5,019,300 BALANCE SHEET BALANCE SHEET Assets Liabilities and Equity Assets Liabilities and Equity 16.426.800 Short-term debt 14.040,000Short-term debt 10.560,000 Current assets Current assets 12,355,200 11,060,000 Long-term debt Long-term debt 11,060,000 Fixed assets 37.000.000 Fixed assets 43,290,000 3,700,000 Common stock Common stock 3,700,000 Accumulated retained earnings Accumulated retained earnings 25,720,000 30,739,300 Total equity Total equity 29,420,000 34,439,300 Total liabilities and Total liabilities and 59,716,800 equity 51,040,000 equity Total assets 51,040,000 Total assets 57,854.500 EFN required 1,862,300 ROE Reinvestment Sustainable growth rate 14.57% ROE 0.1943245 SGR Retention rate 0.75 If entire dividends are eliminated, EFN = 189.200