The financial statements of eagle sport supply are given, Ask an Expert

Finance

The financial statements of Eagle Sport Supply are shown below. For simplicity, "Costs" include interest. Assume that Eagle's assets are proportional it its sales.

a. Find Eagle's required external funds if it maintains a dividend payout ratio of 60% and plans a growth rate of 15% in 2012.

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

c. Now suppose that the firm plans instead to increase long-term debt only $1,100 and does not wish to issue any new shares of stock. Why must the dividend payment now be the balancing item? What will its value be?

Income Statement

Sales 950

Cost 250

Pretax income 700

Taxes (at 28.6%) 200

Net Income 500

Balance Sheet, Year-end

Assets 3000 2700 Debt 1000 900
Equity 2000 1800

Total 3000 2700 Total 3000 2700

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