Question
Eagle Sports Supply has the following financial statements. Assume that Eagles assets are proportional to its sales. INCOME STATEMENT, 2019 Sales $ 1,200 Costs 230
Eagle Sports Supply has the following financial statements. Assume that Eagles assets are proportional to its sales.
INCOME STATEMENT, 2019 | |||
Sales | $ | 1,200 | |
Costs | 230 | ||
Interest | 40 | ||
Taxes | 180 | ||
Net income | $ | 750 | |
BALANCE SHEET, YEAR-END | ||||||||||||||||
2018 | 2019 | 2018 | 2019 | |||||||||||||
Assets | $ | 3,300 | $ | 3,600 | Debt | $ | 1,500 | $ | 1,600 | |||||||
Equity | 1,800 | 2,000 | ||||||||||||||
Total | $ | 3,300 | $ | 3,600 | Total | $ | 3,300 | $ | 3,600 | |||||||
a. Find Eagles required external funds if it maintains a dividend payout ratio of 50% and plans a growth rate of 20% in 2020. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. If Eagle chooses not to issue new shares of stock, what variable must be the balancing item?
c. What will be the value of this balancing item? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
d. Now suppose that the firm plans instead to increase long-term debt only to $1,700 and does not wish to issue any new shares of stock. What is now the balancing item?
e. What will be the value of this new balancing item? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started