**Please Type, No Handwritten Explanations**

1 Income Statement 2_Sales 3 COGS 4 Other expenses 5 Depreciation 6 EBIT 7 Interest 8 Taxable income 9 Taxes (40%) 10 Net income 11 12 Dividends 13 Add to RE 14 $80,518,460 -$58,672,892 -$10,210,200 -$3,608,440 $8,026,928 -$1,261,040 $6,765,888 -$2,706,355 $4,059,533 $1,220,000 $2,839,533 15 Balance Sheet Assets 16 17 18 Current assets 19 Cash 20 Accounts rec. 21 Inventory 22 Total CA $912,870 $1,466,250 $2,146,360 $4,525,480 Liabilities and Equity Current liabilities Accounts payable $1,858,010 Notes payable $4,242,700 Total CL $6,100,710 23 Long-term debt $11,000,000 24 Fixed assets 25 Net PP&E 26 27 $35,446,860 Shareholder equity Common stock Retained earnings Total equity $800,000 $22,071,630 $22.871,630 28 29 30 Total Assets $39,972,340 Total L&E $39,972,340 31 32 33 1) The product and marketing departments at XYZ Corp are estimating a growth rate of 15 percent for next year. 34 Consider the two distinct scenarios below: 35 36 1. Assume fixed assets increase proportionally to sales and will be depreciated at a similar rate to existing fixed 37 assets. 38 ii. Assume that, to increase production, XYZ Corp must set up an entirely new location at a cost of $10,000,000. 39 40 A) Calculate the EFN for the company for each of the scenarios assuming the company is operating at full 41 capacity today (i.e. 100% utilization). Can the company's sales increase at this growth rate? What will be the 42 capacity utilization for the company next year? 43 44 Discuss the methodology used above. What would you likely change if you operated in an environment in which 45 certain balance sheet items don't vary proportionally with sales? 46 1 Income Statement 2_Sales 3 COGS 4 Other expenses 5 Depreciation 6 EBIT 7 Interest 8 Taxable income 9 Taxes (40%) 10 Net income 11 12 Dividends 13 Add to RE 14 $80,518,460 -$58,672,892 -$10,210,200 -$3,608,440 $8,026,928 -$1,261,040 $6,765,888 -$2,706,355 $4,059,533 $1,220,000 $2,839,533 15 Balance Sheet Assets 16 17 18 Current assets 19 Cash 20 Accounts rec. 21 Inventory 22 Total CA $912,870 $1,466,250 $2,146,360 $4,525,480 Liabilities and Equity Current liabilities Accounts payable $1,858,010 Notes payable $4,242,700 Total CL $6,100,710 23 Long-term debt $11,000,000 24 Fixed assets 25 Net PP&E 26 27 $35,446,860 Shareholder equity Common stock Retained earnings Total equity $800,000 $22,071,630 $22.871,630 28 29 30 Total Assets $39,972,340 Total L&E $39,972,340 31 32 33 1) The product and marketing departments at XYZ Corp are estimating a growth rate of 15 percent for next year. 34 Consider the two distinct scenarios below: 35 36 1. Assume fixed assets increase proportionally to sales and will be depreciated at a similar rate to existing fixed 37 assets. 38 ii. Assume that, to increase production, XYZ Corp must set up an entirely new location at a cost of $10,000,000. 39 40 A) Calculate the EFN for the company for each of the scenarios assuming the company is operating at full 41 capacity today (i.e. 100% utilization). Can the company's sales increase at this growth rate? What will be the 42 capacity utilization for the company next year? 43 44 Discuss the methodology used above. What would you likely change if you operated in an environment in which 45 certain balance sheet items don't vary proportionally with sales? 46