External Funds Needed The Optical Scam Company has forecast a 20 percent sales growth rate for next year. The current fi nancial statements are shown here:

Income Statement Sales $38,000,000 Costs 33,400,000 Taxable income $ 4,600,000 Taxes 1,610,000 Net income $ 2,990,000 Dividends $1,196,000 Additions to retained earnings 1,794,000 Balance Sheet Assets Liabilities and Equity Current assets $ 9,000,000 Short-term debt $ 8,000,000 Long-term debt 6,000,000 Fixed assets 22,000,000 Common stock $ 4,000,000 Accumulated retained earnings 13,000,000 Total equity $17,000,000 Total assets $31,000,000 Total liabilities and equity $31,000,000

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

b. Construct the fi rm’s pro forma balance sheet for next year and confi rm the external funds needed 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? LO.1