Question

The most recent financial statements for Hopington Tours Inc. follow. Sales for 2018 are projected to grow by 20%. 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. The firm is operating at full capacity and no new debt or equity is issued.

HOPINGTON TOURS INC. 2017 Statement of Comprehensive Income
Sales			$	751,000
Costs				586,000
Other expenses				22,000
Earnings before interest and taxes			$	143,000
Interest paid				18,000
Taxable income			$	125,000
Taxes (30%)				37,500
Net income			$	87,500
Dividends	$	30,000
Addition to retained earnings		57,500

HOPINGTON TOURS INC. Statement of Financial Position as of December 31, 2017
Assets			Liabilities and Owners’ Equity
Current assets			Current liabilities
Cash	$	26,100	Accounts payable	$	68,800
Accounts receivable		41,500	Notes payable		17,800
Inventory		87,700	Total	$	86,600
Total	$	155,300	Long-term debt	$	134,000
			Owners’ equity
Fixed assets			Common stock and paid-in surplus	$	120,000
Net plant and equipment	$	340,000	Retained earnings		154,700
			Total	$	274,700
Total assets	$	495,300	Total liabilities and owners’ equity	$	495,300

Complete the pro forma statement of comprehensive income below. (Input all amounts as positive values. Omit $ sign in your response.)

HOPINGTON TOURS INC. Pro Forma Statement of Comprehensive Income
	20 % Sales Growth
Sales	$
Costs
Other expenses
EBIT	$
Interest
Taxable income	$
Taxes (30%)
Net income	$
Dividends	$
Add. to RE

Complete the pro forma statement of financial position below.

HOPINGTON TOURS INC. Pro Forma Statement of Financial Position
Assets		Liabilities and Owners’ Equity
Current assets		Current liabilities
Cash	$	Accounts payable	$
Accounts receivable	$	Notes payable	$
Inventory	$	Total	$
Total	$	Long-term debt	$
		Owners’ equity
Fixed assets		Common stock and paid-in surplus	$
Net plant and equipment	$	Retained earnings	$
		Total	$
Total assets	$	Total liabilities and owners’ equity	$

Calculate the EFN for 20% growth rates.

	20%
EFN	$

Answer 1

Solution: HOPINGTON TOURS INC. Pro Forma Statement of Comprehensive Income working 20 % Sales Growth 751000*1.2 586000*1.2 22000*1.2 Sales Costs Other expenses EBIT Interest Taxable income Taxes (30%) Net income Dividends Add. to RE 901200 703200 26400 171600 18000 153600 46080 107520 36864 70656 107520*30000/ 87500 HOPINGTON TOURS INC. Pro Forma Statement of Financial Position Assets** Current assets Cash Accounts receivable Inventory Total Liabilities and Owners' Equity Current liabilities 31320 Accounts payable** 82560 49800 Notes payable 17800 105240 Total 100360 186360 Long-term debt 134000 Owners' equity Common stock and paid-in surplus 120000 408000 Retained earnings=154700+70656 225356 Total 345356 594360 Total liabilities and owners' equity 579716 Fixed assets Net plant and equipment Total assets **All assets and accounts payable increases by 20% 14644 19260.578716) EFN (594360-579716) 2054