Question
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
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$217,260 equity; $90,525 long-term debt; $54,315 notes payable
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$217,260 equity; $90,525 notes payable; $54,315 long-term debt
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$54,315 equity; $90,525 long-term debt; $217,260 notes payable
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None of the options are correct.
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