a) | External funds required = [(Assets / Sales) x Δ sales] - [(Spontaneous liabilities / Sales) x Δ sales] - [(Projected sales x Profit margin) x (1-Dividend payout ratio)] | |||
EFN = (24800000/25380000)*25380000*15%-(5200000/25380000)*25380000*15%-25380000*115%*8.8534%*(1-35%) = | $ 12,60,373 | |||
Workings: | ||||
Net profit margin = 2247000/25380000 = | 8.8534% | |||
Dividend payout ratio = 786450/2247000 = | 35.00% | |||
b) | Next Year | |||
Current Year | Basis for projections | Projections before raising AFN | ||
INCOME STATEMENT | ||||
Sales | $ 2,53,80,000 | +15% | $ 2,91,87,000 | |
Less: Costs | $ 2,16,35,000 | 85.24% of sales | $ 2,48,80,250 | |
Taxable income | $ 37,45,000 | $ 43,06,750 | ||
Taxes at 40% | $ 14,98,000 | $ 17,22,700 | ||
Net income | $ 22,47,000 | $ 25,84,050 | ||
Dividends (35%) | $ 7,86,450 | $ 9,04,418 | ||
Addition to retained earnings | $ 14,60,550 | $ 16,79,633 | ||
BALANCE SHEET | ||||
Current assets | $ 72,00,000 | $ 82,80,000 | ||
Fixed assets-Net | $ 1,76,00,000 | $ 2,02,40,000 | ||
Total assets | $ 2,48,00,000 | $ 2,85,20,000 | ||
Short term debt | $ 52,00,000 | $ 59,80,000 | ||
Long term debt | $ 60,00,000 | $ 60,00,000 | ||
Common stock | $ 32,00,000 | $ 32,00,000 | ||
Retained earnings | $ 1,04,00,000 | +1679633 | $ 1,20,79,633 | |
Total | $ 2,48,00,000 | $ 2,72,59,633 | ||
EFN | $ 12,60,368 | |||
Marginal difference between [a] and [b] due to approximation in [a] | ||||
c) | SGR = ROE*b/(1-ROE*b). | |||
ROE = 2247000/13600000 = | 16.52% | |||
SGR = 0.1652*0.65/(1-0.1652*0.65) = | 12.03% | |||
d) | Yes. By changing the dividend policy the firm can completely eliminate the need for external funds. | |||
The projected retained earnings is $1679633, which is more than the EFN of $1260368. | ||||
Measures to meet growth objectives: | ||||
*Restrict dividend | ||||
*Increase profit margins | ||||
*Use assets more efficiently | ||||
*Use more debt |
13. External Funds Needed The Optical Scam Company has forecast a sales growth rate of 15 percent for next year. The cu...
13. External Funds Needed The Optical Scam Company has forecast a sales growth rate of 15 percent for next year. The current financial statements are shown here: Income Statement Sales $25,380,000 Costs 21,635,000 $3,745,000 Taxable income Taxes 1,498,000 Net income $2247,000 Dividends $786,450 Addition to retained earnings 1,460,550 Balance Sheet Liabilities and Owners' Equity Assets $ 5,200,000 Current assets $7,200,000 Short-term debt 6,000,000 Long-term debt Fixed assets 17.600,000 $3,200,000 Common stock 10,400,000 Accumulated retained earnings Total equity $13,600,000 Total assets...
External Funds Needed The Optical Scan Company has forecast a 20 percent sales growth rate for next year. The current financial statements are shown here: 3.8 Statement of Comprehensive Income Sales Costs Taxable income Taxes Net income $30,400,000 26,720,000 $ 3,680,000 1,288,000 $ 2,392,000 Dividends Addition to retained earnings $ 956,800 1,435,200 Statement of Financial Position Assets Liabilities and shareholder's equity Current assets 7,200,000 Short-term debt Fixed assets 17,600,000 Long-term debt Common stock $6,400,000 4,800,000 $3,200,000 10,400,000 $13,600,000 $24.800,000 Accumulated...
The Optical Scam Company has forecast an 17 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales. INCOME STATEMENT Sales $ 44,000,000 Costs 35,200,000 Taxable income $ 8,800,000 Taxes 3,080,000 Net income $ 5,720,000 Dividends $ 1,430,000 Additions to retained earnings $ 4,290,000 BALANCE SHEET Assets Liabilities and Equity Current assets $ 14,040,000 Short-term debt $ 10,560,000 Long-term debt 11,060,000 Fixed assets 37,000,000 Common...
The Optical Scam Company has forecast a sales growth rate of 25 percent for next year. Current assets, fixed assets, and short-term debt are proportional to sales. The current financial statements are shown here: INCOME STATEMENT Sales $ 32,000,000 Costs 26,309,400 Taxable income $ 5,690,600 Taxes 1,991,710 Net income $ 3,698,890 Dividends $ 1,479,556 Addition to retained earnings 2,219,334 BALANCE SHEET Assets Liabilities and Equity Current assets $ 7,360,000 Short-term debt $ 7,040,000 Long-term debt 2,240,000 Fixed assets...
p0 The Optical Scam Company has forecast a sales growth rate of 25 percent for next year. The current financial statements are shown here Income Statement Sales Costs $ 32,000,000 26,309,400 Taxable income Taxes $ 5,690,600 1,991,710 Net income $3,698,890 Dividends Addition to retained earnings $ 1,479,556 2,219,334 Balance Sheet Assets Liabilities and Equity Current assets $ 7,360,000 Short-term debt Long-term debt $7,040,000 2,240,000 Fixed assets 18,560,000 Common stock Accumulated retained earnings $ 6,070,000 10,570,000 $ 16,640,000 $ 25,920,000 Total...
32. (15 points) The Optical Scam Company has forecast a sales growth rate of 20 percent for next year The current financial statements are shown below. Assuming that assets, COGS, and short-term carnave the same growth rate as sales, and that the retention ratio does not change, what is the external financing needed for next year? Income Statement Sales COGS 31,700,000 26,426,900 Taxable income Taxes 5,273,100 1,845,585 Net income $ 3,427,515 Dividends Addition to retained earnings $1,371,006 2,056,509 Balance Sheet...
I have used the suggested formulas I have found for this problem but the answers keep coming out wrong. Please help! The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. Current assets, fixed assets, and short-term debt are proportional to sales. The current financial statements are shown here: INCOME STATEMENT Sales $ 32,200,000 Costs 27,743,800 Taxable income $ 4,456,200 Taxes 1,559,670 Net income $ 2,896,530 Dividends $ 1,158,612 Addition to retained earnings...
Q4. Calculate the sustainable growth rate for LSUS corporation. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming growth at precisely this rate. Recalculate the ratios in the previous question. What do you observe? Choice 2: Ratios and Financial Planning After Han’s analysis of LSUS corporation’ cash flow, Amanda, the CEO of the company, approached Han about the company’s performance and future growth plans. First, Amanda wants to find out how LSUS corporation is...
Determining of external funds needed. n of External Funds Needed. Ina Corporation is thinking of purchasing a new his new machine, the company expects sales to increase from $8,000,000 to 3.3 Determinatio $10,000,000n thi new machine, the company expects sales to increase from $8,000,000 to any knows that its assets, accounts payable, and accrued expenses vary directly with mpany's profit margin on sales is 8 percent, and the company plans to pay 40 percent machine. With sales. T of its...
1. Compute the external financing needed to support the projected annual sales growth. The most recent financial statements for Fleury, Inc., follow. Sales for 2012 are projected to grow by 20%. Interest expense will remain constant. The tax rate and the dividend payout rate will 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...