Long - Term Financing Needed

At year - end 2021, Wallace Landscaping's total assets, all of which are used in operations, were $2.17 million, and its account payable were $560,000. Sales, which in 2021 were $3.5 million, are expected to increase by 35% in 2022. Total assets and accounts payable are proportional to sales, and that relationships will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $625,000 in 2021 and retained earnings were $390,000. Wallace has arranged to sell $195,000 of new common stock in 2022 to meet some of its financing needs. The remainder of its financing needs will be met by issueing new long - term debt and the end of 2022. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its new profit margin on sales is 5%, and 45% of earnings will be paid out as dividends.

Suppose the values for this problem change to:

Total Assets: $2,270,533

Sales Growth: 32.5%

Profit Margin: 5.5%

What is the self-supporting growth rate? You can use the formula or Excel's goal seek. Round your percentage to one decimal, i.e. you would enter 12.34% as 12.3..

Suppose the values for this problem change to:

Total Assets: $2,396,300

Sales Growth: 26.4%

Profit Margin: 6.9%

At what growth rate would long-term debt stay the same, i.e. no new debt is needed? Using Excel's goal seek is the easiest way to solve this. You can also try to solve the equation arithmetically. Round your percentage to one decimal, i.e. you would enter 12.34% as 12.3..