Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Delta has 500,000 common shares outstanding. The firm is projecting a 20% increase in net sales for the coming year (20X3). Delta uses the percentage

Delta has 500,000 common shares outstanding. The firm is projecting a 20% increase in net sales for the coming year (20X3). Delta uses the percentage of sales approach to plan for its financing needs. In using this approach, the firm assumes that cost of goods sold, depreciation, all assets (current and fixed), and accounts payable will all remain a constant percentage of sales. The firm will aim to maintain its dividend payout of 35% for the foreseeable future. The interest rate charged on notes payable and long-term debt is also expected to remain the same in.

1. Construct the pro-forma statement of comprehensive income and statement of financial position for Delta Corporation for 20X3. Calculate the external financing needed (EFN) for 20X3. Round all your numbers in the pro-forma statements to the nearest dollar.

2. How will the external financing needed (EFN) for 20X3 be affected if Delta is only operating at 70% capacity? Interpret this EFN number, and explain what the firm can do with it.

3.What is Deltas internal growth rate for 20X2? Round your final answer in percentage to two decimal places.

4.What is Deltas sustainable growth rate for 20X2? Round your final answer in percentage to two decimal places.

5.Explain how Delta could go bankrupt if it wants to grow its sales by 100% for 20X3.

Year

20X1

20X2

Net sales

$1,200,000

$1,335,481

Cost of goods sold

540,000

600,966

Depreciation

180,000

200,322

Interest paid

43,120

42,960

Cash

102,000

113,516

Accounts receivable

360,000

400,644

Inventory

360,000

400,644

Net fixed assets

1,440,000

1,602,577

Accounts payable

300,000

333,870

Notes payable

39,000

37,000

Long-term debt

500,000

500,000

Common stock

1,000,000

1,000,000

Retained earnings

423,000

646,511

Tax rate

30%

30%

Dividend payout

35%

35%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: Marshall B. Romney

8th Edition

0201357216, 9780201357219

More Books

Students also viewed these Accounting questions

Question

Differentiate the function. r(z) = 2-8 - 21/2 r'(z) =

Answered: 1 week ago