Financial Statements Analysis and Financial Models
Calculating EFN In Problem 21, suppose the firm wishes to keep its debt–equity ratio constant. What is EFN now?
Reference:
Calculating EFN The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2012 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. If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 20 percent growth rate in sales?
Homework Answers
Use spreadsheet for the ease in computation.
Compute the amount of EFN (External Fund Needed) in the following steps:
First step: Prepare Proforma income statement for the 20% growth rate in sales as follows:
Enter values and formulas in the spreadsheet as shown in the image below to prepare Proforma income statement.
Second step: Compute debt-equity ratio as follows:
Formulas used in spreadsheet for computation are shown below.
Third step: Compute the EFN for new level of total debt as follows:
Thus, the EFN is
.
Fourth step: Prepare Proforma balance sheet as follows:
It is evident from the above image that the Total liabilities and owners’ equity is more than the Total assets. It means firm has excess cash of $43,559
which will cost to the company. Also, the firm has sufficient fixed, thus, increasing level of assets is not a good idea.
Thus, it would be better to utilize excess cash to repurchase equity and debt. It should be kept in mind that the excess of debt will be used to repurchase of debt and excess of equity will be used to repurchase equity.
Enter values and formulas in the spreadsheet as shown in the image below to prepare Proforma balance sheet.
Fifth step: The level of debt and equity after repurchase is provided below.
Formulas used in spreadsheet for computation are shown below.
Finally, prepare the balance sheet after repurchase of debt and equity as shown in the image below.
Formulas used in spreadsheet for computation are shown below.
Problem 3-21 Calculating EFN The most recent financial statements for Moose Tours, Inc., appear below. Sales...
Problem 3-21 Calculating EFN The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2012 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, fixed assets, and accounts payable increase spontaneously with sales. MOOSE TOURS, INC. 2011 Income Statement Sales Costs Other expenses $ 748.000 583.000 19.000 Earnings before interest and taxes Interest expense $ 146.000 10,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $ 750,000 Costs 585,000 Other expenses 21,000 Earnings before interest and taxes $ 144,000 Interest expense 17,000 Taxable income $ 127,000 ...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
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 $ 725,000 Costs 591,000 Other expenses 12,000 Earnings before interest and taxes $ 122,000 Interest expense 14,000 Taxable income $ 108,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $744,000 579,000 15,000 Earnings before interest and taxes Interest expense $150,000 11,000 Taxable income Taxes (20%) $139,000 27,800...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $744,000 579,000 15,000 Earnings before interest and taxes Interest expense $150,000 11,000 Taxable income Taxes (20%) $139,000 27,800...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
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 $ 749,000 Costs 584,000 Other expenses 20,000 Earnings before interest and taxes $ 145,000 Interest expense 16,000 Taxable income $ 129,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
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 Costs Other expenses $755,000 590,000 11,000 Earnings before interest and taxes Interest expense $154,000 12,000 Taxable income Taxes (40%) $142,000 56,800...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $ 746,000 Costs 581,000 Other expenses 17,000 Earnings before interest and taxes $ 148,000 Interest expense 14,000 Taxable income $ 134,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $ 752,000 Costs 587,000 Other expenses 23,000 Earnings before interest and taxes $ 142,000 Interest expense 12,000 Taxable income $ 130,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected...
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 Costs Other expenses $763,000 598,000 19,000 Earnings before interest and taxes Interest expense $146,000 10,000 Taxable income Taxes (35%) $136,000 47,600...
Problem 3-21 Calculating EFN The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2012 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, fixed assets, and accounts payable increase spontaneously with sales. MOOSE TOURS, INC. 2011 Income Statement Sales Costs Other expenses $ 748.000 583.000 19.000 Earnings before interest and taxes Interest expense $ 146.000 10,000...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $744,000 579,000 15,000 Earnings before interest and taxes Interest expense $150,000 11,000 Taxable income Taxes (20%) $139,000 27,800...
The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 25 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 $744,000 579,000 15,000 Earnings before interest and taxes Interest expense $150,000 11,000 Taxable income Taxes (20%) $139,000 27,800...
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 Costs Other expenses $755,000 590,000 11,000 Earnings before interest and taxes Interest expense $154,000 12,000 Taxable income Taxes (40%) $142,000 56,800...
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 Costs Other expenses $763,000 598,000 19,000 Earnings before interest and taxes Interest expense $146,000 10,000 Taxable income Taxes (35%) $136,000 47,600...
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