Eagle Sports Supply has the following financial statements. Assume that Eagle\'s

Question

Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales Sales Costs Interest Taxes INCOME STATEMENT, 2012 $1,150 220 30 170 Net income $ 730 BALANCE SHEET, YEAR-END 2011 2011 2012 $1,400 $1,500 1,800 2,000 2012 Assets $3,200 $3,500 Debt Equity Total $3,200 $3,500 Total $3,200 $3,500 a. Find Eagle's required external funds if it maintains a dividend payout ratio of 70% and plans a growth rate of 20% in 2013. (Do not round intermediate calculations. Round your answer to 2 decimal places.) External fund b-1 If Eagle chooses not to issue new shares of stock, what variable must be the balancing item? Debt Interest Dividends b-2 What will its value be? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value c. Now suppose that the firm plans instead to increase long-term debt only to $1,600 and does not wish to issue any new shares of stock. What will be the value of dividend payment now? Value

Explanation / Answer

Income statement 2012 2013 Sales 1150 1380 Costs 220 264 Interests 30 36 Taxes 170 204 Net income 730 876 2011 2012 2013 2011 2012 2013 Assets 3200 3500 4200 Debt 1400 1500 1937.2 Equity 1800 2000 2262.8 Total 3200 3500 4200 Total 3200 3500 4200 a) External fund 437.2 b-1) Debt b-2) Debt value 437.2 c) New debt 1600 Increase in debt 100 Increase in assets 700 Value of equity 2600 Retained earnings 600 Dividend 276

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