Question

The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by either 20, 25, or 30 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 Costs Other expenses $750,000 585,000 21,000 Earnings before interest and taxes Interest expense $ 144.000 17,000 Taxable income Taxes (30%) $ 127,000 38,100 Net income $ 88,900 Dividends Addition to retained earnings $ 20,320 68,580 Assets Current assets Cash Accounts receivable Inventory MOOSE TOURS, INC. Balance Sheet as of December 31, 2015 Liabilities and Owners' Equity Current liabilities $ 20,940 Accounts payable 33,260 Notes payable 70,220 Total $ 55,100 14,300 $ 69,400 Total $ 124,420 Long-term debt $ 133,000 Fixed assets Net plant and equipment Owners' equity Common stock and paid-in surplus Retained earnings $ 300,400 $ 119,000 103,420 Total $ 222,420 Total assets $ 424,820 Total liabilities and owners' equity $ 424,820

Answer 1

Solution: Part a: 22.85714% Payout ratio=Dividend/Net income 20320/88900 Tax rate 30% Proforma Income statement 30% Sales costs other expenses EBIT Interest expense Taxable income Taxes at 30% Net income Dividend @22.85714% Add to RE 20% 25% 2017 sales growth sales growth sales growth 750000 900000 937500 975000 585000 702000 731250 760500 21000 25200 26250 27300 144000 172800 180000 187200 17000 17000 17000 17000 127000 155800 163000 170200 38100 467401 489001 51060 88900 109060 114100 119140 20320 24928 26080 27232 68580 84132 88020 9 1908 Part b: 20% 424820 -55100 369720 25% 424820 -55100 369720 30% 424820 -55100 369720 Total assets Less : accounts payable Net x Growth rate Total funds needed Less: Add to RE EFN 0 OM 73944 -84132 -10188 92430 -880200 4410 110916 -91908 19008