26.4 The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.

The current financial policy of the Optimal Scam Company includes Dividend-payout ratio

(d) = 70%
Debt-to-equity ratio (L) = 77.78%
Net profit margin (P) = 6.25%
Assets-sales ratio (T) = 1

a. Determine Optimal Scam’s need for external funds next year.

b. Construct a pro forma balance sheet for Optimal Scam.

c. Calculate the sustainable growth rate for the Optimal Scam Company.

d. How can Optimal Scam change its financial policy to achieve its growth objective?

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Income Statement ($ millions) Balance Sheet ($ millions) Sales 32.00 Current assets Costs 28.97 Fixed assets 16 16 Gross profit 3.03 Total assets Taxes 1.03 Net income 2.00 Current debt 10 Long-term debt Dividends 1.40 Total debt Retained earnings 0.60 Common stock 14 Ret. earnings Total liabilities and equity