Question

1. a. (10) Crum Co's balance sheet and income statement for 2001 are given below. The firm expects sales to grow by 50% in 2002. Operating costs, spontaneous liabilities, and assets will increase in proportion to sales. The company plans to finance any additional funds needed using debt at an interest rate of 10%. What is the company's projected funds needed for 2002? Assume interest expenses are 10% of the beginning year of debt balance 2001 2002 – 1st pass 2002 – 2nd pass Sales $1,000 Operating costs EBIT 200 Interest 16 ЕВТ 184 Taxes (40%) 73.6 Net Income 110.40 Dividends (60%) 66.24 Addn. TO RE 44.16 150 Cash AR Inventories Total CA Gross FA Accum.Depreciation Net FA 700 80 620 Total assets 1000 A/P and accruals 150 Debt 200 Common stock 150 Retained Earnings 500 Total Liab.& Equity 1000

Answer 1

	2002 Anount $	remark
Sales	1500.0	1000*1.5
Operating cost	1200.0	1500*.80
EBIT	300.0	1500-1200
Interest	20.0	200*.1
EBT	280.0	300-20
Tax	112.0	280*.4
Net Income	168.0	280-112
Dividend	100.8	168*.6
Addn to RE	67.2	168-100.8
Cash	45.0
A/R	225.0
Inventory	300.0
Total CA	570.0
Gross FA	1050.0
Accum. Dep	120.0
Net FA	930.0
Total Asset	1500.0
A/P and accruals	225.0
Debt	557.8	balancing fig
Common stock	150.0
Retained earning	567.2
	1500.0

Asset and liabilities increase by 50% from last year since sales increase by 50% from last year