Question

The most recent financial statements for Crosby, Inc., follow. Interest expense will remain constant the tax rate and the dividend payout rate will also remain constant. Costs. other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. CROSBY, INC. 2017 Income Statement Sales Costs Other expenses $761.000 617,000 28,000 Earnings before interest and taxes Interest paid $ 116,000 13,200 Taxable income Taxes (23%) $102,800 23,644 Net income $ 79,156 Dividends Addition to retained earnings $27,640 51,516 CROSBY, INC. Balance Sheet as of December 31, 2017 Assets Liabilities and Owners' Equity Current assets Current liabilities Cash $ 25,040 Accounts payable $ 60,600 Accounts receivable 34.440 Notes payable 17000 Inventory 71,240 Total $ 77,600 Total $ 130.720 Long term debt $109,000 Owners' equity

Answer 1

Pro-forma Income Statements
	Current	20% Sales Growth	25% Sales Growth	30% Sales Growth
Sales	7,61,000	9,13,200	9,51,250	9,89,300
Costs	6,17,000	7,40,400	7,71,250	8,02,100
Other Expenses	28,000	33,600	35,000	36,400
EBIT	1,16,000	1,39,200	1,45,000	1,50,800
Interest paid	13,200	13,200	13,200	13,200
Taxable Income	1,02,800	1,26,000	1,31,800	1,37,600
Taxes	23,644	28,980	30,314	31,648
Net Income	79,156	97,020	1,01,486	1,05,952
Dividends	27,640	33,878	35,437	36,997
Add to RE	51,516	63,142	66,049	68,955
Working Notes :
Dividend payout ratio = 27640/79156 = 0.34918389 - Same in all cases
Tax rate = 23% = constant
Interest paid is same in all cases, i.e., 13,200$
Costs and Other Expenses have increased by the same % as sales