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) Using Percentage of Sales. Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales.

12.) Using Percentage of Sales. Eagle Sports Supply has the following financial statements. Assume that Eagle’s assets are proportional to its sales.

Income Statement, 2009
Sales $950
Costs 250
Interests 50
Taxes 150
Net Income $500

Balance Sheet, Year-End
2008 2009 2008 2009
Assets $2,700 $3,000 Debt $900 $1,000
Equity 1,800 2,000
Total $2,700 $3,000 Total $2,700 $3,000

a.) Find Eagle’s required external funds if it maintains a dividend payout ratio of 70% and plans a growth rate of 15% in 2010.

b.) If Eagle chooses not to issue new shares of stock, what variable must be the balancing item? What will its value be?

c.) Now suppose that the firm plans instead to increase long-term debt only to $1,100 and does not wish to issue any new shares of stock. Why must the dividend payment now be the balancing item? What will its value be?

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