Question

Problem 4-25 Capacity Usage and Growth [LO2] - Sell fixed assets

The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 30 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales.

CROSBY, INC. 2017 Income Statement
Sales				$	761,000
Costs					596,000
Other expenses					32,000
Earnings before interest and taxes				$	133,000
Interest paid					28,000
Taxable income				$	105,000
Taxes (23%)					24,150
Net income				$	80,850
Dividends	$	25,064
Addition to retained earnings		55,786

CROSBY, INC. Balance Sheet as of December 31, 2017
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	22,040		Accounts payable	$	56,200
Accounts receivable		44,980		Notes payable		15,400
Inventory		105,960		Total	$	71,600
Total	$	172,980		Long-term debt	$	144,000
Fixed assets				Owners’ equity
Net plant and equipment	$	437,000		Common stock and paid-in surplus	$	121,500
				Retained earnings		272,880
				Total	$	394,380
Total assets	$	609,980		Total liabilities and owners’ equity	$	609,980

In 2017, the firm operated at 80 percent of capacity. Construct the pro forma income statement and balance sheet for the company. Assume that fixed assets are sold so that the company has a 100 percent asset utilization. (Do not round intermediate calculations.)

What is the EFN? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

Answer 1

Profoma Income statement of Crosby, Inc Sales 9,89,300.00 less: Cost 7,74,800.00 Less: Other Expenses 41,600.00 Earnings Before interest and taxes Less: Interest Paid 1,72,900.00 28,000.00 Taxable Income 1,44,900.00 Less: Taxes @ 23% 33,327.00 Net income $ 1,11,573.00 Profoma Balance sheet of Crosby, Inc Liabilities and owners Equity Amount Asset Current Assets Amount Current liabilities 28,652.00 Accounts payable 58,474.00 Notes Payable 1,37,748.00 Total 2,24,874.00 Long term debt Owners Equity $ Cash 73,060.00 $ $ Accounts Receivable 15,400.00 $ $ Inventory Total 88,460.00 $ 1,44,000.00 Fixed Assets Net Plant and Equipment 5,68,100.00 Common stock and paid in surplus $ $ 1,21,500.00 Retained earnings Total $ 4,39,014.00 5,60,514.00 7,92,974.00 7,92,974.00 Total liabilities and owners equity $ $ Total assets

calculating EFN =(Assets/Sales change in sales) (Liaibilities/Sales change in sales) - (Net income / sales Forecasted sales (1-d)) ($609,980/ $761,000 $228,300) ($215, 600/ $761,000* $228,300) ($111,573 / $761,000 $989300 ( 1-0.76)) = $182,993.99- $64,679.99- $34,810.77 $83,503.23