Needing help with homework in attached spreadsheet

Chapter 4 Problem 12 Ottawa Corporation Financial Statements, 2013 and Projected 2014 ($ millions) INCOME STATEMENT Actual Projected 2013 2014 Sales $ 3,500 $ 4,025 COGS 2,775 3,019 Operating e 360 403 EBIT 365 604 Interest exp 68 80 EBT 297 524 Tax 102 183 Net income $ 195 $ 341 Assumptions for 2014 Sales growth rate 15.0% COGS/sales 75.0% Oper. Exp./sales 10.0% Dividend payout ratio 40.0% Tax rate 35.0% Interest rate on debt 7.2% Total debt/equity 50.0% Instructions: Use the pro forma financial sta BALANCE SHEET Actual Projected 2013 2014 Cash $ 150 $ 173 Accounts rec 540 621 Inventory 1,050 1,208 Total curr 1,740 2,001 Property, pl 1,578 1,815 Total asset 3,318 3,816 Total debt Shareholders Total liab $ 1,106 2,212 3,318 $ External funding required Sustainable growth rate 1,208 2,416 3,625 Questions: a. Enter a formula for external b. Given your answer from (a), c. At what rate does the actual s d. Return the sales growth rate e. Return COGS/Sales to 75%. f. Return the dividend payout r g. Given the above options, and recommendation for a reasonab shortfall. Your solution can inv Instructions: Use the pro forma financial statements to answer the questions below. Change the assumptions in the assumptions box as needed to answer the ques a. Enter a formula for external funding required in the first green box. How much external financing does Ottawa need in 2014? b. Given your answer from (a), do you expect the sustainable growth rate to be greater than, less than, or equal to the sales growth rate for 2014? Ent c. At what rate does the actual sales growth rate equal the sustainable growth rate? How much external financing is required at this growth rate? (Th d. Return the sales growth rate to 15%. Suppose Ottawa wants to solve the financing shortfall by increasing profit margin. How low would the ratio e. Return COGS/Sales to 75%. Now suppose Ottawa wants to solve the shortfall by increasing the retention ratio. How low would the dividend pay f. Return the dividend payout ratio to 40%. Now suppose Ottawa wants to make up any financing shortfall with increased debt. How high would the g. Given the above options, and any other options that you can find, make a recommendation for a reasonable and practical solution to Ottawa's financing shortfall. Your solution can involve changing multiple variables. needed to answer the questions. In addition to the assumptions listed on the spreadsheet, also assume that all asset accounts will grow at the same rat growth rate for 2014? Enter a formula for the sustainable growth rate in the second green box. What is Ottawa's sustainable growth rate? ed at this growth rate? (This can be determined by trial and error.) . How low would the ratio of COGS/Sales have to go in order to make up the shortfall? With COGS/Sales at this lower level, what is the sustainable ow would the dividend payout ratio have to be in order to eliminate the financing shortfall? debt. How high would the debt/equity ratio have to be to make up the difference? ts will grow at the same rate as sales, and that no new equity will be issued in 2014. ble growth rate? vel, what is the sustainable growth rate? (Hint: The Goal Seek tool can help you find this quickly. Consult Excel Help if you are unfamiliar with the G ou are unfamiliar with the Goal Seek tool.)