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Question 4 Consider the following recent financials for XYZ Corporation Income Statement Balance Sheet Sales 72,429Assets 178,884 Debt 44,955 Costs 43,457 Equity 133,929 EBIT 28,972 Taxes @ 38% 11,009Total 178,884Total 178,884 Net Income 17,963

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2.577 was paid, and the company wishes to maintain a constant payout ratio. Next years sales are projected to grow by 24%. What is the pro-forma value for equity? (Round answer to 2 decimal places. Do not round intermediate calculations. Also, do not calculate the numbers given in the income statement and balance sheet, such as the Taxes and Net income. Take them as given.). What is the external financing needed using the pro-forma approach? (Round answer to 2 decimal places. Do not round intermediate calculations. Also, do not calculate the numbers given in the income statement and balance sheet, such as the Taxes and Net income. Take them as given.). What is the internal growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations). What is the sustainable growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations). Topic: Financial Models (EFN & Growth)

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Answer #1

Calculate the proforma equity and EFN and growth rates as follows:

Income statement Projected 3 Particulars 4 Sales 5 COGS 6 ΕΒΙΤ 7 Taxes @38% 8 Net income 9 Dividend 10 Retained earnings Amount Amount $72,429.00 $43.457.00 $28,972.00 $11,009.36 $17,962.64 $2,577.00 $15,385.64 $89,811.96 $53.886.68 $35,925.28 $13.651.61 $22,273.67 S3,195.48 $19,078.19 Balance sheet 12 13 14 Particular 15 Assets 16 17 Total 18 19 20 Internal growth rate 21 Retun on assets 22 Retention ratio 23 Internal growth rate 24 25 Sustainable growth rate 26 Return on equity 27 Retention ratio 28 Sustainable growth ra Projected Projected Amount Amount Amount Particular Amount $178,884.00 $221,816.16 Debt $44,955.00 $133,929.00$153,007.19 Answer a $178.884.00S197.962.19 S23,853.97 $44,955.00 Equitv $178.884.00$221.816.16 External funds needed answer b 10.04% 85.65% 9.41% answer c 14.56% 85.65% 14.25%answer d

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Formulas:

Income statement 2 3 Particulars 4 Sales 5 COGS 6 EBIT 7 Taxes @38% 8 Net income 9 Dividend 10 Retained earnings ected Amount 72429 43457 -B4-B5 Amount -B4*(1+2490) -B5*(1+24% E4-E5 -E6*38% -E6-E7 B6*38% -B6-B7 2577 -B8-B9 -E8-E9 12 13 14 Particular 15 Assets 16 17 Total 18 19 20 Internal growth rate 21 Return on assets 22 Retention ratio 23 Internal growth rate 24 25 Sustainable growth rate 26 Retum on e 27 Retention ratio 28 Sustainable growth rate Balance sheet ected Projected Amount 178884 Particulair Debt Equitv Amount Amount 44955 133929 -SUM(F15:F16 Amount B15*(1+24%) -F15 F16+E10 Answer a SUMB15:B16) External funds needed SUMD15:D16) SUMH15:H16) -D17-H17 answer b E8D17 -E10/E8 B22 B21)/(1-(B22 B21 answer c -E8/H16 -E10/E8 27 B26/(1-(B27 B26 answer d

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