Problem: A company has the following Income Statement and Balance Sheet:
Income Statement
Sales $26,400
Expenses $17,300
Taxable Income $9,100
Taxes (40%) $3,640
Net Income $5,460
Dividends $ 2,300
Additional Retained Earnings 3,160
Balance Sheet
Total Assets $65,000 Debt $27,400
Equity $37,600
Total $6,5000 Total $65,000
Assets and costs are presumed to be proportional to Sales. Debt and Equity are not. Current dividends of $ 2,300 were paid; and the company's dividend policy is to maintain a constant payout ratio. Next year Sales are projected to be $ 30,360.
Given this information, how much additional (external) funding will the company need to support its projected Sales growth?
Prepare a pro forma Balance Sheet which reflects this estimated funding requirement as a "plug" number.
If the starting capital structure is considered optimal and flotation costs for equity are 5% and the administrative costs of borrowing are 3%, how much capital will the company need to raise to meet its projected asset requirements?
What is the external funding requirement if the company has a constant dividend policy with a 3% annual growth rate? (Do not consider flotation cost).