Question
Morrissey Technologies Inc.'s 2021 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 Cash $ 204,000 Accounts payable $
Morrissey Technologies Inc.'s 2021 financial statements are shown here.
Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 | ||||||
Cash | $ | 204,000 | Accounts payable | $ | 408,000 | |
Receivables | 408,000 | Accrued liabilities | 204,000 | |||
Inventories | 816,000 | Notes payable | 60,200 | |||
Total current assets | $ | 1,428,000 | Total current liabilities | $ | 672,200 | |
Long-term debt | 102,000 | |||||
Fixed assets | 1,632,000 | Common stock | 2,040,000 | |||
Retained earnings | 245,800 | |||||
Total assets | $ | 3,060,000 | Total liabilities and equity | $ | 3,060,000 |
Morrissey Technologies Inc.: Income Statement for December 31, 2021 | ||||||
Sales | $ | 4,080,000 | ||||
Operating costs including depreciation | 3,718,914 | |||||
EBIT | $ | 361,086 | ||||
Interest | 21,086 | |||||
EBT | $ | 340,000 | ||||
Taxes (25%) | 85,000 | |||||
Net income | $ | 255,000 |
Per share data: | ||
Common stock price | $ | 51.00 |
Earnings per share (EPS) | $ | 2.55 |
Dividends per share (DPS) | $ | 1.02 |
Suppose that in 2022, sales increase by 12% over 2021 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2021 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 87.5% and increase its total liabilities-to-assets ratio to 35%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 40% of the 2022 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $51. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Round your answers to the nearest cent.
Morrissey Technologies Inc.: Pro Forma Income Statement for December 31, 2022 | |
Sales | $ fill in the blank 2 |
Operating costs including depreciation | fill in the blank 3 |
Earnings before interest and taxes (EBIT) | $ fill in the blank 4 |
Interest | fill in the blank 5 |
Earnings before taxes (EBT) | $ fill in the blank 6 |
Taxes (25%) | fill in the blank 7 |
Net income (NI) | $ fill in the blank 8 |
Dividends | $ fill in the blank 9 |
Addition to retained earnings | $ fill in the blank 10 |
Morrissey Technologies Inc.: Pro Forma Balance Sheet as of December 31, 2022 | |
Assets | |
Cash | $ fill in the blank 11 |
Receivables | fill in the blank 12 |
Inventories | fill in the blank 13 |
Total current assets | $ fill in the blank 14 |
Fixed assets | fill in the blank 15 |
Total assets | $ fill in the blank 16 |
Liabilities and Equity | |
Accounts payable | $ fill in the blank 17 |
Accrued liabilities | fill in the blank 18 |
Notes payable | fill in the blank 19 |
Total current liabilities | $ fill in the blank 20 |
Long-term debt | fill in the blank 21 |
Total liabilities | $ fill in the blank 22 |
Common stock | fill in the blank 23 |
Retained earnings | fill in the blank 24 |
Total common equity | $ fill in the blank 25 |
Total liabilities and equity | $ fill in the blank 26 |
If the profit margin remains at 6.25% and the dividend payout ratio remains at 40%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Round your answer to two decimal places.
fill in the blank 27 %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started