Instead of 50% of net income as dividends, change to 42%. Also, instead of a 20% tax rate, change to 28%. New equity must be found due to new percentages.
Chapter 2 Financial Statements, Taxes, and Cash Flow MINICASE Cash Flows and Financial Statements at Sunset Boards, Inc. Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, as dividends to Tad and the other original investors, and it has is in charge of the design and sale of the surfboards, but his a 20 percent tax rate. You are Christina's assistant, and she has background is in surfing, not business. As a resalt, the com- asked you to prepare the following: pany's financial records are not well maintained Sunset Boards currently pays out 50 percent of net income . An income statement for 2010 and 2011. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven't required detailed inancial statements from Tad. But thanks to word of mouth 5. Cash flow to creditors for 2011 among professional surfers, sales have picked up recently, and 6. Cash Bow to stockholders for 2011 Tad is considering a major expansion. His plans include open- ing another surfboard store in Hawali, as well as supplying his sticks" (surfer lingo for boards) to other sellers. 2. A balance shoet for 2010 and 2011 3. Operating cash flow for each year 4. Cash flow from assets for 2011. QUESTIONS 1. How would you describe Sunset Boards' cash flows for Tad's expansion plans require a significant investment. which he plans to finance with a combination of additional funds from outsiders plus some moncy bornowed from banks. Naturally, the new investors and creditors require more orga nized and detailed financial statements than Tad has previ- ously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year 2011? Write a brief discussion. 2. In light of your discussion in the previous question, what m outsiders plus s do you think about Tad's expansion plans? After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the fol lowing information: 2010 2011 $208,886 35,721 52,282 11,526 42,058 47,325 248,625 391,810 21.732 20,796 116,334 43,381 20,500 $ 163,849 23,643 46,255 10,056 Cost of goods sold Cash Interest expense Selling and administrative Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt 32,223 41,786 204,068 321,437 16,753 19.046 103,006 32,255 New equity
