MINI CASE: Hello, Can someone answer this question by 10am please I need this answered today for homework that is due today at 11:30am. Thank you

Financial Planning and External Financing Needed (40 points)

Do not round intermediate calculations

Dan Ervin was recently hired by East Coast Yachts to assist the company with its short term planning and also to evaluate the companys financial performance. Dan

graduated from college five years ago with a finance degree, and he has been

employed in the treasury department of a Fortune 500 company since then.

East Coast Yachts was founded 10 years ago by Larissa Warren. The companys

operations are located near Hilton Head Island, South Carolina, and the company is

structured as an LLC. The company has manufactured custom midsize, high-

performance yachts for clients over this period, and its products have received high

reviews for safety and liability.

The custom yacht industry is fragmented, with a number of manufacturers. As with any industry, there are market leaders, but the diverse nature of the industry ensures that no manufacturer dominates the market. The competition in the market, as well as the product cost, ensures the attention to detail is a necessity.

To get Dan started with his analyses, Larissa has provided the following financial

statements:

East Coast Yachts

2015 Income statement:

Sales $210,900,000

Costs of goods sold 148,600,000

Other expenses 25,192,000

Depreciation 6,879,000

Earnings before interest and taxes (EBIT) $30,229,000

Interest 3,791,000

Taxable Income $26,438,000

Taxes (40%) 10,575,200

Net income $15,862,800

Dividends $4,759,301

Add to RE $11,103,499

East Coast Yachts

Balance Sheet as of December 31, 2015

Assets Liabilities & Equity

Current assets Current liabilities

Accounts payable $6,977,700

Cash $3,285,600 Notes payable 14,342,600

Accounts Receivable 5,910,800 Total $21,320,300

Inventory 6,627,300 Long-term debt $36,400,000

Total $15,823,700 Shareholders equity

Fixed Assets Common stock $ 5,580,000

Net plant and equipment $101,481,200 Retained earnings 54,004,600

Total assets $117,304,900 Total Equity $59,584,600

Total liabilities and equity $117,304,900

.

a. Calculate the sustainable growth rate of East Coast Yachts.

b.

Calculate the External Financing Needed (EFN) and prepare Pro Forma Income

Statements and Balance Sheets assuming sales grow at the sustainable growth

rate.

c.

As a matter of fact, East Coast Yachts is unlikely to be willing to raise external

capital, mainly because owners do not want to dilute their control positions.

Given these considerations, it seems that East Coast Yachts is planning a growth

rate of 20%. What is the External Financing Needed when the assumption of

sustainable growth rate is removed and sales grow at a rate of 20%? Compare

your result in part (c) with your result in part (b).

d.

For this question start by considering the Pro Forma Income Statements and

Balance Sheets you have derived in part (c), when the growth rate is equal to 20%.

Assume East Coast Yachts wants to expand production.

To this aim, the company decides to set up a new line of production by increasing net fixed assets by $25 million. Will the Pro-Forma Income Statement and the Balance Sheet be affected by the firms decision? If so, show how they change and compute the new External Financing Needed.

Expert Answer

Hang tight! We are finding a Chegg Expert to answer this question.