Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i need help with the second question 1 ABC Inc. is a juice producer which has been growing steadily for the past 5 years. According

image text in transcribed
image text in transcribed
i need help with the second question
1 ABC Inc. is a juice producer which has been growing steadily for the past 5 years. According to the expected market demand, the company is planning to grow its sales at 15% next year. Since the company is currently operating at full capacity, fixed assets will also grow proportional to sales, same as current assets and current liabilities. However, long-term debt and equity will not grow proportional to sales but rather management will decide upon their next year level based on an acceptable level of debt to equity ratio as well as ROE ratio. The company has a dividend pay-out ratio of 40%, which the management want to maintain in order to meet the shareholders' expectations. Below are the financial statements of ABC Inc. for the year ending Sept 2020. 1) Determine the value of the "External money needed" for next year. (Do not round intermediate calculations. Round the final answer to 2 decimal places, Omit commas, spaces and $ sign) 1 (10 Points) ABC's Balance Sheet Amounts in 000's Sep-20 ABC Inc. Income statement Amounts in 000's Sep-20 Sales 5,700 Costs 4,200 Taxable income 1,500 Taxes (34%) 510 Net income 990 Cash Accounts Receivables Inventory Current assets Fixed assets Total Assets Sep-20 200 Accounts Payable 2,000 1,600 Accrued Expenses 200 2,100 Current liabilities 2,200 3,900 Long-term debt 3,750 8,100 Equity 6,050 12,000 Total Liab & Equity 12,000 2 What would be the impact on ROE & Debt Equity ratios if the company decides to cover the "external money needed" by raising debt? (In the space below calculate and write down the current ROE & debt/equity ratios, and then calculate and write down both ratios after raising debt to cover the external money needed next year). (10 Points)

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

American Public School Finance

Authors: William A. Owings, Leslie S. Kaplan

3rd Edition

113849996X, 978-1138499966

More Books

Students also viewed these Finance questions