18-1)

The following is the financial statement of Executive Fruit Company for the year ended December 2014.

INCOME STATEMENT, 2014(Figures in $ Thousands)Revenue$6,500Cost of goods sold5,850EBIT$650Interest130Earnings before taxes$520State and federal tax208Net income$312Dividends208Additions to retained earnings$104

BALANCE SHEET (Year-End, 2014)(Figures in $ Thousands)AssetsNet working capital$650Fixed assets2,600Total assets$3,250Liabilities and shareholders' equityLong-term debt$1,300Shareholders' equity1,950Total liabilities and shareholders' equity$3,250

The following are the first stage and second stage pro forma financial statements of Executive Fruit Companyfor the year ended December 2015.

First stage pro forma statements:

PRO FORMA INCOME STATEMENT, 2015(Figures in $ Thousands)Revenue$7,150Cost of goods sold6,435EBIT$715Interest130Earnings before taxes$585State and federal tax234Net income$351Dividends234Additions to retained earnings$117

PRO FORMA BALANCE SHEET (Year-End, 2015)(Figures in $ Thousands)AssetsNet working capital$715Fixed assets2,860Total assets$3,575Liabilities and shareholders' equityLong-term debt$1,300Shareholders' equity2,067Total liabilities and shareholders' equity$3,367Required external financing$208

Second stage pro forma balance sheet:

PRO FORMA BALANCE SHEET (Year-End, 2015)(Figures in $ Thousands)AssetsNet working capital$715Fixed assets2,860Total assets$3,575Liabilities and shareholders' equityLong-term debt$1,508Shareholders' equity2,067Total liabilities and shareholders' equity$3,575

How would Executive Fruits financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing?(Do not round intermediate calculations.)

Dividends fall by $. Therefore, the requirement for external financing falls from $to $. On the other hand, shareholders' equity will be increased by $.

The right-hand side of the balance sheet becomes(Do not round intermediate calculations. Enter your answers in thousands.):

Long-term debt$Shareholders' equityTotal$