External Funds Neede d The Optical Scam Company has forecast a 15 percent sales growth rate for next year. The current financial statements are shown here:

Income Statement Sales Costs Taxable income Taxes Net income Dividends Addition to retained earnings

$ 956,800 1,435,200

$30,400,000 26,720,000

$ 3,680,000 1,288,000

$ 2,392,000 Balance Sheet Assets Liabilities and Equity Current assets Fixed assets Total assets

$ 7,200,000 17,600,000

$24,800,000 Short-term debt Long-term debt Common stock Accumulated retained earnings Total equity Total liabilities and equity

$ 6,400,000 4,800,000

$ 3,200,000 10,400,000

$13,600,000

$24,800,000

a. Using the equation from the chapter, calculate the external funds needed for next year.

b. Construct the firm’s pro forma balance sheet for next year and confirm the external funds needed that you calculated in part (a).

c. Calculate the sustainable growth rate for the company.

d. Can Optical Scam eliminate the need for external funds by changing its dividend policy? What other options are available to the company to meet its growth objectives?