Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales. INCOME STATEMENT, 2019 Sales Costs Interest Taxes Net income Assets Total $1,300 250 60 200 $ 790 BALANCE SHEET, YEAR-END 2019 2018 $ 3,500 $ 3,800 $ 3,500 $ 3,800 a. External funding need b. Balancing item c. Value Debt Equity Total 2018 $ 800 2,700 $3,500 2019 $ 900 2,900 $ 3,800 a. Find Eagle's required external funds if it maintains a dividend payout ratio of 70% 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 $1,000 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.)
Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales. INCOME STATEMENT, 2019 Sales Costs Interest Taxes Net income Assets Total $1,300 250 60 200 $ 790 BALANCE SHEET, YEAR-END 2019 2018 $ 3,500 $ 3,800 $ 3,500 $ 3,800 a. External funding need b. Balancing item c. Value Debt Equity Total 2018 $ 800 2,700 $3,500 2019 $ 900 2,900 $ 3,800 a. Find Eagle's required external funds if it maintains a dividend payout ratio of 70% 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 $1,000 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales.
INCOME STATEMENT, 2019
Sales
Costs
Interest
Taxes
Net income
Assets
Total
2018
$ 3,500
$ 3,500
C.
$1,300
250
60
200
790
a. External funding need
b. Balancing item
Value
$
BALANCE SHEET, YEAR-END
2019
$ 3,800
$ 3,800
Debt
Equity
Total
2018
$ 800
2,700
$ 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
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?
2019
$
900
2,900
$ 3,800
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 $1,000 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.)
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