Question
Problem 3-21 Calculating EFN The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 25 percent. Interest
Problem 3-21 Calculating EFN
The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.
RETRO MACHINE, INC. 2016 Income Statement | ||||||
Sales | $ | 761,000 | ||||
Costs | 596,000 | |||||
Other expenses | 17,000 | |||||
Earnings before interest and taxes | $ | 148,000 | ||||
Interest paid | 18,000 | |||||
Taxable income | $ | 130,000 | ||||
Taxes (20%) | 26,000 | |||||
Net income | $ | 104,000 | ||||
Dividends | $ | 20,800 | ||||
Addition to retained earnings | 83,200 | |||||
RETRO MACHINE, INC. Balance Sheet as of December 31, 2016 | |||||||
Assets | Liabilities and Owners Equity | ||||||
Current assets | Current liabilities | ||||||
Cash | $ | 22,040 | Accounts payable | $ | 56,200 | ||
Accounts receivable | 34,360 | Notes payable | 15,400 | ||||
Inventory | 71,320 | Total | $ | 71,600 | |||
Total | $ | 127,720 | Long-term debt | $ | 144,000 | ||
Fixed assets | Owners equity | ||||||
Net plant and equipment | $ | 450,000 | Common stock and paid-in surplus | $ | 130,000 | ||
Accumulated retained earnings | 232,120 | ||||||
Total | $ | 362,120 | |||||
Total assets | $ | 577,720 | Total liabilities and owners equity | $ | 577,720 | ||
The firm is operating at full capacity and no new debt or equity is issued. Calculate the pro forma income statement and balance sheet for the company. What external financing is needed to support the 25 percent growth rate in sales? EFN
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