Question

The Optical Scam Company has forecast an 17 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales.

INCOME STATEMENT

Sales			$	44,000,000
Costs				35,200,000
Taxable income			$	8,800,000
Taxes				3,080,000
Net income			$	5,720,000
Dividends	$	1,430,000
Additions to retained earnings	$	4,290,000

BALANCE SHEET
Assets			Liabilities and Equity
Current assets	$	14,040,000	Short-term debt	$	10,560,000
			Long-term debt		11,060,000
Fixed assets		37,000,000
			Common stock	$	3,700,000
			Accumulated retained earnings		25,720,000
			Total equity	$	29,420,000
Total assets	$	51,040,000	Total liabilities and equity	$	51,040,000

    

External funds needed

$

   

  

Sustainable growth rate

%

   

Suppose Optical Scam eliminates its dividend entirely. What is the new EFN?

   

New External funds needed

$

Answer 1