Question

Eagle Sports Supply has the following financial statements. Assume that Eagle’s assets are proportional to its sales.

INCOME STATEMENT, 2019
Sales	$	1,500
Costs		290
Interest		30
Taxes		240
Net income	$	940

BALANCE SHEET, YEAR-END
	2018				2019					2018				2019
Assets	$	3,900			$	4,200			Debt	$	1,200			$	1,300
									Equity		2,700				2,900
Total	$	3,900			$	4,200			Total	$	3,900			$	4,200

a. Find Eagle’s required external funds if it maintains a dividend payout ratio of 50% and plans a growth rate of 20% in 2020. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If Eagle chooses not to issue new shares of stock, what variable must be the balancing item?

c. What will be the value of this balancing item? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Now suppose that the firm plans instead to increase long-term debt only to $1,400 and does not wish to issue any new shares of stock. What is now the balancing item?

e. What will be the value of this new balancing item? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

External funding need Balancing item 276.00 а. Debt b. Value 276.00 C. Retained earnings Balancing item Value d. е.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

BOND - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste BI U D- DA E E E Format Painter Clipboard Font A1024 Wrap Text FMerce Merge & Center - Center s $ % % , 4.0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells B D EAGLE SPORTS EXISTING SALES INCREASE IN SALES= PROFIT MARGIN= DIVIDEND PAYOUT = 1500 20% 62.66667% [940/1500) 50% 1024 1025 1026 a 1027 1028 1029 1030 1031 1032 1033 1034 1035 1036 b 1037 1038 C 1039 1040 d 1041 1042 HEM Rea EXTERNAL FINANCING REQUIRED = INCREASE IN TOTAL ASSETS - INCREASE IN RETAINED EARNINGS EXTERNAL FINANCING REQUIRED = (4200 X 20%) - (1500 X (1+0.20)*(62.66667%)*(0.50)) EXTERNAL FINANCING REQUIRED = 840 - 564 EXTERNAL FINANCING REQUIRED = 276.00 DEBT IF COMPANY DOES NOT ISSUE SHARES THEN DEBT MUST BE ISSUED VALUE OF THE BALANCING ITEM = 276.00 (AMOUNT IS SAME AS EXTERNAL FUNDING NEED) IF DEBT ISSUED = 1400 THE NEW BALANCING ITEM IS RETAINED EARNINGS AFN BANKING NOTE 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFELP, IP, MRP, INFLATION WARRANT refund YIELD SPOT Sheet2 ferences: FV395 54 55 56 0 BOU 130% - -_ 0 0 D.FR 9 * ENG 23-11-2019

- 2x BOND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri -11AA = = = Dr Wrap Text General E Copy Fill Paste D- DA BI SF U Merge Merge & Center - Center $ % % , 4:0 .00 :.: Conditional Format Cell Sort & Insert Delete Format Find & Format Painter Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing B1050 ДА 1039 1040 d IF DEBT ISSUED = 1400 1041 THE NEW BALANCING ITEM IS RETAINED EARNINGS 1042 1043 e EXTERNAL FUNDING NEED = 276 1044 NEW DEBT ISSUED = 1400 - 1300 = 100 1045 SO RETAINED EARNINGS SHOULD INCREASE BY = 276-100 1046 SO RETAINED EARNINGS SHOULD INCREASE BY = 176 1047 VALUE OF THE BALANCING ITEM = 564 + 176 = 740 1048 1049 1050 1051 1052 1053 1054 1055 1056 1057 H YIELD SPOT Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE 510 BIDDING, UNDERWRITING EUAC AW LIFELP, IP, MRP, INFLATION WARRANT refund 54 55 56 I Rea ferences: GC323 BOI 130% 2. B 9 . * O 0 + ENG 23-11-2019