Question

Eagle Sports Supply has the following financial statements. Assume that Eagle’s assets are proportional to its sales.

INCOME STATEMENT, 2019
Sales	$	1,050
Costs		200
Interest		80
Taxes		150
Net income	$	620

BALANCE SHEET, YEAR-END
	2018				2019					2018				2019
Assets	$	3,000			$	3,300			Debt	$	1,200			$	1,300
									Equity		1,800				2,000
Total	$	3,000			$	3,300			Total	$	3,000			$	3,300

  

a. Find Eagle’s 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 $1,400 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.)

Answer 1

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