Calculate the sustainable growth rate of East Coast Yachts. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming growth at precisely this rate. Recalculate the ratios in the previous question. What do you observe?

As a practical matter, East Coast Yachts is unlikely to be willing to raise external equity capital, in part because the owners dont want to dilute their existing ownership and control positions. However, East Coast Yachts is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of East Coasts expansion plans?

EAST COAST YACHTS 2015 Income Statement \begin{tabular}{lr} Sales & $210,900,000 \\ Cost of goods sold & 148,600,000 \\ Other expenses & 25,192,000 \\ Depreciation & 6,879,000 \\ Earnings before interest and taxes (EBIT) & $30,229,000 \\ Interest & 3.791,000 \\ Taxable income & $26,438,000 \\ Taxes (40\%) & 10.575,200 \\ Net income & $15,862,800 \\ \hline \end{tabular} Dividends $4,759,301 Add to RE $11,103,499 EAST COAST YACHTS Balance Sheet as of December 31, 2015 Yacht Industry Ratios \begin{tabular}{lccc|} & Lower Quartile & Median & Upper Quartile \\ \hline Current ratio & .50 & 1.43 & 1.89 \\ Quick ratio & .21 & .38 & .62 \\ Total asset turnover & .68 & .85 & 1.38 \\ Inventory turnover & 6.85 & 9.15 & 16.13 \\ Receivables turnover & 6.27 & 11.81 & 21.45 \\ Debt ratio & .44 & .52 & .61 \\ Debt-equity ratio & .79 & 1.08 & 1.56 \\ Equity multiplier & 1.79 & 2.08 & 2.56 \\ Interest coverage & 5.18 & 8.06 & 9.83 \\ Profit margin & 4.05% & 6.98% & 9.87% \\ Return on assets & 6.05% & 10.53% & 15.83% \\ Return on equity & 9.93% & 16.54% & 28.14% \end{tabular}