Question 1. As you are trying to get a better grasp of the growth potential of the company, you decide to look the the IGR and SGR numbers.

(a) Compute the IGR and SGR.

(b) What do each of those mean? One of your analysts mentioned that the Marketing and Sales departments are forecasting a growth in sales of 10%. Additionally, the same analyst informed you that the firm is at capacity right now and any further growth would require an investment in fixed assets of $5 million dollars. Before your meeting with the new CEO, you decided to get a sense of what the impact of such growth would be:

(c) What is the EFN for a growth of 10% in sales and the capacity assumption above? Also assume that the dividend payout ratio remains constant, and that cost of goods sold, current assets and accounts payable grow proportionally to sales.

(d) What does the number you computed mean?

(e) Suppose you decide to raise any needed capital through long term debt with no interest payments in the coming year. What is your new Debt-Equity Ratio? Is it larger or smaller than the Debt-Equity Ratio you currently have? Does it contradict the numbers for the IGR or the SGR you computed before? Why is that?

You just started a new job as a Finance Manager at XYZ Corp. As you are starting to get acquainted with the company, you requested the Balance Sheet for the Current Fiscal Year 2018, the Income Statement and a few other items that you deemed appropriate. You can find all of those in the table below and in the Excel file attached. Income Statement for the Current Fiscal Year Sales $43,000,000 COGS $30,000,000 Other expenses $5,000,000 Depreciation $2,000,000 EBIT $6,000,000 Interest $2,000,000 Taxable income $4,000,000 Taxes (40%) $1,600,000 Net income $2,400,000 Dividends Add to RE $600,000 $1,800,000 Balance Sheet, Current Fiscal Year Assets Current Assets Cash $500,000 Accounts Receivable $1,000,000 Inventory $2,000,000 Total CA $3,500,000 Fixed Assets Net PP&E $25,000,000 Liabilities & Owners' Equity Current Liabilities Accounts Payable $1,000,000 Notes Payable $3,000,000 Total CL $4,000,000 Long Term Debt $10,000,000 Owners' Equity Common Stock $6,500,000 Retained Earnings $8,000,000 Total Equity $14,500,000 Total L & OE $28,500,000 Total Assets $28,500,000 Additional information Taxes Shares Outstanding Dividend growth in the last 7 years 40% 1,000,000 8.00% Market-to-Book Ratio 1.25 Depreciation of New Assets 25.00%