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				$	752,000
Costs					587,000
Other expenses					23,000
Earnings before interest and taxes				$	142,000
Interest paid					12,000
Taxable income				$	130,000
Taxes (30%)					39,000
Net income				$	91,000
Dividends	$	27,300
Addition to retained earnings		63,700

RETRO MACHINE, INC. Balance Sheet as of December 31, 2016
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$	21,140		Accounts payable	$	55,300
Accounts receivable		33,460		Notes payable		14,500
Inventory		70,420		Total	$	69,800
Total	$	125,020		Long-term debt	$	135,000
				Owners equity
Fixed assets				Common stock and paid-in surplus	$	121,000
Net plant and equipment	$	340,000		Accumulated retained earnings		139,220
				Total	$	260,220
Total assets	$	465,020		Total liabilities and owners equity	$	465,020

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				25% Sales Growth				30% Sales Growth
Sales	$				$				$
Costs
Other expenses
EBIT	$				$				$
Interest
Taxable income	$				$				$
Taxes (30%)
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	$

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	$

30% 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, 25, and 30 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%			25%			30%
EFN	$			$			$