Question

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
Taxes (30%)					38,100
Net income				$	88,900
Dividends	$	20,320
Addition to retained earnings		68,580

   

MOOSE TOURS, INC. Balance Sheet as of December 31, 2015
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	20,940		Accounts payable	$	55,100
Accounts receivable		33,260		Notes payable		14,300
Inventory		70,220
				Total	$	69,400
Total	$	124,420		Long-term debt	$	133,000
Fixed assets				Owners’ equity
Net plant and equipment	$	360,000		Common stock and paid-in surplus	$	119,000
				Retained earnings		163,020
				Total	$	282,020
Total assets	$	484,420		Total liabilities and owners’ equity	$	484,420

  

What is the EFN if the firm wishes to keep its debt–equity ratio constant? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

EFN

$

Answer 1

A C E F G H AMOUNT AMOUNT LIABILITIES & SHAREHOLDER'S EQUITY 1 Income Statement ASSETS Sales LIABILITIES: 2 937,500 CURRENT ASSETS: Cash Account Receivable Inventory $ 68,875 3 Less: Costs $ 26,175 Account Payable $ 41,575 Notes Payable $ 87,775 731,250 Less: Other expenses 4 26,250 14,300 EBIT 5 180,000 Less: Interest $ 83,175 $133,000 Total 6 17,000 Total FIXED ASSETS: Net plant and equipment $450,000 SHAREHOLDER'S EQUITY $155,525 Long Term Debt EBT 7 163,000 Less: Tax @ 30% 48,900 Net income 9 114,100 Common Shareholder's Equity Accumulated Retained Earnings 10 Less: Dividends $119,000 $251,040 $370,040 $586,215 26,080 Retained Earnings $ 11 88,020 Total 12 $605,525 TOTAL OF LIABILITES & SAHREHOLDER'S EQUITY 13 TOTAL OF ASSETS 14 15 Debt-Equity ratio 0.7177 16 17 New debt level 265,570 18 $49,395 EFN 19

A LIABILITIES & SHAREHOLDER'S EQUITY AMOUNT 1 Income Statement ASSETS AMOUNT Sales 3 Less: Costs 4 Less: Other expenses EBIT 6 Less: Interest EBT 8 Less: Tax 30 % CURRENT ASSETS: Cash Account Receivable Inventory LIABILITIES: - 750000 1.25 -585000*1.25 2 55100*1.25 14300 20940 1.25 Account Payable = 33260*1.25 Notes Payable = 70220*1.25 - 21000 1.25 -C2-C3-C4 17000 C5-C6 =+C7*0.3 -SUM(H3 :H5) 133000 Total - SUM ( F3 : F6 ) Total Long Term Debt 7 FIXED ASSETS: Net income Less: Net plant and equipment 360000 1.25 SHAREHOLDER'S EQUITY EC7-C8 20320/88900) 119000 163020+C11 =SUM(H10:H11) TOTAL OF LIABILITES & SAHREHOLDER'S EQUITY H12+H7+ H6 Ly Accumulated Retained Retained EarningsC9-C10 11 ngs Total 12 TOTAL OF ASSETS = +F9+ F7 13 14 -(133000+69400)/282020 15 Debt-Equity ratio 16 17 New debt level H12 C15 18 C17-133000-69400-55100*25% FN 19