Problem 3-24 EFN and Internal Growth

The most recent financial statements for Retro Machine, Inc., follow. 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				$	749,000
Costs					584,000
Other expenses					20,000
Earnings before interest and taxes				$	145,000
Interest paid					16,000
Taxable income				$	129,000
Taxes (40%)					51,600
Net income				$	77,400
Dividends	$	18,060
Addition to retained earnings		59,340

RETRO MACHINE, INC. Balance Sheet as of December 31, 2016
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$	20,840		Accounts payable	$	55,000
Accounts receivable		33,160		Notes payable		14,200
Inventory		70,120		Total	$	69,200
Total	$	124,120		Long-term debt	$	132,000
				Owners equity
Fixed assets				Common stock and paid-in surplus	$	118,000
Net plant and equipment	$	310,400		Accumulated retained earnings		115,320
				Total	$	233,320
Total assets	$	434,520		Total liabilities and owners equity	$	434,520

Complete the pro forma income statements below. (Do not round intermediate calculations and round your answers to the nearest whole number.)

Pro Forma Income Statement
		15% Sales Growth				20% Sales Growth				25% Sales Growth
Sales	$				$				$
Costs
Other expenses
EBIT	$				$				$
Interest
Taxable income	$				$				$
Taxes (40%)
Net income	$				$				$
Dividends	$				$				$
Add to RE

Complete the pro forma balance sheet for each sales growth rate. (Do not round intermediate calculations and round your answers to the nearest whole number.) 15% Sales Growth:

Pro Forma Balance Sheet
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$			Accounts payable	$
Accounts receivable				Notes payable
Inventory				Total	$
Total	$			Long-term debt	$
				Owners equity
Fixed assets				Common stock and paid-in surplus	$
Net plant and equipment	$			Accumulated retained earnings
				Total	$
Total assets	$			Total liabilities and owners equity	$

20% Sales Growth:

Pro Forma Balance Sheet
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$			Accounts payable	$
Accounts receivable				Notes payable
Inventory				Total	$
Total	$			Long-term debt	$
				Owners equity
Fixed assets				Common stock and paid-in surplus	$
Net plant and equipment	$			Accumulated retained earnings
				Total	$
Total assets	$			Total liabilities and owners equity	$

25% Sales Growth:

Pro Forma Balance Sheet
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$			Accounts payable	$
Accounts receivable				Notes payable
Inventory				Total	$
Total	$			Long-term debt	$
				Owners equity
Fixed assets				Common stock and paid-in surplus	$
Net plant and equipment	$			Accumulated retained earnings
				Total	$
Total assets	$			Total liabilities and owners equity	$

Calculate the EFN for 15, 20, and 25 percent growth rates. (Do not round intermediate calculations and round your answers to the nearest whole number. A negative answer should be indicated by a minus sign.)

	15%			20%			25%
EFN	$			$			$