Question

The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 20 percent. 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. MOOSE TOURS, INC. 2015 Income Statement   Sales $ 745,000   Costs 580,000   Other expenses 16,000   Earnings before interest and taxes $ 149,000   Interest expense 12,000   Taxable income $ 137,000   Taxes (35%) 47,950   Net income $ 89,050   Dividends $ 21,920   Addition to retained earnings 67,130    MOOSE TOURS, INC. Balance Sheet as of December 31, 2015 Assets Liabilities and Owners’ Equity   Current assets   Current liabilities     Cash $ 20,440     Accounts payable $ 54,600     Accounts receivable 32,760     Notes payable 13,800     Inventory 69,720       Total $ 68,400       Total $ 122,920   Long-term debt $ 128,000   Fixed assets   Owners’ equity     Net plant and equipment $ 480,000     Common stock and paid-in surplus $ 114,000     Retained earnings 292,520       Total $ 406,520   Total assets $ 602,920   Total liabilities and owners’ equity $ 602,920     What is the EFN if the firm was operating at only 80 percent of capacity in 2015? Assume that fixed assets are sold so that the company has a 100 percent asset utilization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

	Moose Tours,Inc.
	Income Statement
		2015	2016(20% increase in Sales)	20% increase in Sales
	Sales=(A)	$     7,45,000.00	745000*1.20	$                      8,94,000.00
	Cost=(B)	$     5,80,000.00	580000*1.20	$                      6,96,000.00
	Other Expenses=(C )	$         16,000.00	16000*1.20	$                          19,200.00
	Earnings before interest and tax=(D)=(A)-(B)-(C )	$     1,49,000.00	149000*1.20	$                      1,78,800.00
	Interest Expense=(E )	$         12,000.00	same	$                          12,000.00
	Taxable Income=(F )=(D)-(E)	$     1,37,000.00		$                      1,66,800.00
	Taxes=(G)	$         47,950.00		$                          58,380.00
	Net Income=(H)=(F)-(G)	$         89,050.00		$                      1,08,420.00
*	Dividends=(I)	$         21,920.00		$                          26,688.00
	Addition to Retained Earnings=(H)-(I)	$         67,130.00		$                          81,732.00
*	Dividend=($21920/$89050)*$108420	$         26,688.00
	Moose Tours,Inc.
	Balance Sheet
		2015	2016	2016
	Assets
	Cash	$         20,440.00	20400*1.20	$                                24,528
	Accounts Receivable	$         32,760.00	32760*1.20	$                                39,312
	Inventories	$         69,720.00	69720*1.20	$                                83,664
	Net Fixed Assets	$     4,80,000.00	480000*1.20	$                            5,76,000
	Total Assets(1)	$     6,02,920.00		$                            7,23,504
	Liabilties
	Accounts Payable	$         54,600.00	54600*1.20	$                                65,520
	Notes Payables	$         13,800.00	same	$                                13,800
	Long Term Debts	$     1,28,000.00	same	$                            1,28,000
	Common Stock and paid in surplus	$     1,14,000.00	same	$                            1,14,000
**	Retained Earnings	$     2,92,520.00		$                            3,74,252
	Total Liabilities & Equity(2)	$     6,02,920.00		$                            6,95,572
	AFN=(1)-(2)		($723504-$695572)	$                                27,932
**	Retained Earnings 31.12.2017
	Retained Earnings (1.1.2017)	$           2,92,520
	Add: Net Income during 2017	$           1,08,420
	Less: Dividend	$               26,688
	Retained Earnings	$           3,74,252