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Suppose that the 2017 actual and 2018 projected financial statements for Counter Corp. are initially as shown in the following tables. In these tables, sales

Suppose that the 2017 actual and 2018 projected financial statements for Counter Corp. are initially as shown in the following tables. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Counter Corp. wants to cover the AFN with 60 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?

Income Statement
2017 Actual 2018 Forecast
Sales $ 4,000,000 $ 5,400,000
Costs except depreciation 2,000,000 2,700,000
Depreciation 1,500,000 2,025,000
EBIT $ 500,000 $ 675,000
Less Interest 216,000 227,587
EBT $ 284,000 $ 447,413
Taxes (40%) 113,600 178,965
Net income $ 170,400 $ 268,448
Common Dividends $ 150,000 $ 150,000
Addition to Retained Earnings $ 20,400 $ 118,448

Balance Sheet
2017 Actual 2018 Forecast
Assets
Cash $ 500,000 $ 675,000
Accounts Receivable 550,000 742,500
Inventories 1,000,000 1,350,000
Total Current Assets $ 2,050,000 $ 1,417,500
Net Plant and Equipment 4,000,000 5,400,000
Total Assets $ 6,050,000 $ 6,817,500
Liabilities and Equity
Accounts Payable $ 600,000 $ 810,000
Notes Payable 900,000 900,000
Accruals 500,000 675,000
Total Current Liabilities $ 2,000,000 $ 2,385,000
Long-term bonds 1,800,000 1,800,000
Total Debt $ 3,800,000 $ 4,185,000
Common Stock $ 2,000,000 $ 2,000,000
Retained Earnings 250,000 270,400
Total Common Equity $ 2,250,000 $ 2,270,000
Total Liabilities and Equity $ 6,050,000 $ 6,455,400

Multiple Choice

  • $217,260 equity; $90,525 long-term debt; $54,315 notes payable

  • $217,260 equity; $90,525 notes payable; $54,315 long-term debt

  • $54,315 equity; $90,525 long-term debt; $217,260 notes payable

  • None of the options are correct.

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