Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

East Coast Yachts uses a small percentage of preferred stock as a source of financing. In calculating the ratios for Page 8 1 the company,

East Coast Yachts uses a small percentage of preferred stock as a source of financing. In calculating the ratios for
Page 81
the company, should preferred stock be included as part of the company's total equity?
Calculate all of the ratios listed in the industry table for East Coast Yachts.
Compare the performance of East Coast Yachts to the industry as a whole. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How would you interpret this ratio? How does East Coast Yachts compare to the industry average for this ratio?
Calculate the sustainable growth rate for East Coast Yachts. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming owth at precisely this rate. Recalculate the ratios in the previous question. What do you observe?
As a practical matter, East Coast Yachts is unlikely to be willing to raise external equity capital, in part because the shareholders don't want to dilute their existing ownership and control positions. However, East Coast Yachts is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of East Coast's expansion plans?
Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume that East Coast Yachts is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new line at a cost of $95,000,000. Prepare the pro forma income statement and balance sheet. What is the new EFN with these assumptions? What does this imply about capacity utilization for East Coast Yachts next year?
EAST COAST YACHTS
2020 Income Statement
Sales
$550,424,000
Cost of goods sold
397,185,000
Selling, general, and administrative ,65,778,000
Depreciation
EBIT
$,69,498,000
Interest expenst
9,900,000
EBT
$,59,598,000
Taxes (25%)
14,899,500
Net income
$,44,698,500
Dividends
$,19,374,500
Retained earnings
25,324,000
image text in transcribed

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

Finance Markets Investments And Financial Management

Authors: Daisy Scott

1st Edition

1639892001, 9781639892006

More Books

Students also viewed these Finance questions

Question

What impediments originate in society at large?

Answered: 1 week ago

Question

How have their tactics changed?

Answered: 1 week ago

Question

What impediments have financial or economic origins?

Answered: 1 week ago