Question #1-4

RYAN CORPORATION INCOME STATEMENT For the year ended December 31, 2017 Sales Fixed costs Variable costs Earnings before interest and taxes Interest Earnings before taxes Taxes (35%) Net Income $7,000,000 2,100,000 4,200,000 700,000 250,000 450,000 157.500 $292,500 Dividends (40% payout) Increase to retained earnings $117,000 $175,500 RYAN CORPORATION BALANCE SHEET As of December 31, 2017 Assets: Cash and marketable securities Accounts Receivable Inventories Total current assets Gross plant and equipment Accumulated depreciation Total Assets $130,000 3,000,000 1.000.000 4,130,000 6,000,000 2.000.000 $8,130,000 Liabilities and equity: Accounts payable Notes payable Accrued wages Total current liabilities Long term bonds (10%) Total liabilities Common stock (1.7million shares) Retained earnings Total equity Total Liabilities and Equity $2,200,000 400,000 150,000 2,750,000 2.500.000 $5,250,000 1,700,000 1.180,000 $2,880,000 $8,130,000 Ryan Corp. is trying to plan the funds needed for 2018. The management anticipates an increase in sales of 20 percent, which can be absorbed without increasing fixed assets. 1. What would be Ryan's needs for external funds based on the current balance sheet (i.e., using Percent-of-Sales Forecasting methods)? Compute AFN using the formula. There is no need to do this the long way! 2. How would AFN change if the company were at full capacity? No need to calculate - only explain what would happen. 3 . How would AFN change if Ryan Corp. raised the dividend payout ratio? Just explain. 4. Calculate the change in AFN if Ryan Corp's sales grow only at a 10 percent rate. Interpret your number