Question
The most recent financial statements for Retro Machine, Inc., follow. Sales for 2014 are projected to grow by 20 percent. Interest expense will remain constant;
The most recent financial statements for Retro Machine, Inc., follow. Sales for 2014 are projected to grow by 20 percent. 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. 2013 Income Statement | ||||||
Sales | $ | 725,000 | ||||
Costs | 591,000 | |||||
Other expenses | 12,000 | |||||
Earnings before interest and taxes | $ | 122,000 | ||||
Interest paid | 14,000 | |||||
Taxable income | $ | 108,000 | ||||
Taxes (50%) | 54,000 | |||||
Net income | $ | 54,000 | ||||
Dividends | $ | 33,360 | ||||
Addition to retained earnings | 20,640 | |||||
RETRO MACHINE, INC. Balance Sheet as of December 31, 2013 | |||||||
Assets | Liabilities and Owners Equity | ||||||
Current assets | Current liabilities | ||||||
Cash | $ | 21,540 | Accounts payable | $ | 55,700 | ||
Accounts receivable | 33,860 | Notes payable | 14,900 | ||||
Inventory | 70,820 | Total | $ | 70,600 | |||
Total | $ | 126,220 | Long-term debt | $ | 139,000 | ||
Fixed assets | Owners equity | ||||||
Net plant and equipment | $ | 280,000 | Common stock and paid-in surplus | $ | 125,000 | ||
Accumulated retained earnings | 71,620 | ||||||
Total | $ | 196,620 | |||||
Total assets | $ | 406,220 | Total liabilities and owners equity | $ | 406,220 | ||
The firm is operating at full capacity and no new debt or equity is issued. Calculate the pro forma income statement and balance sheet for the company. (Do not round intermediate calculations.) |
Pro Forma Income Statement | |||
Sales | $ | ||
Costs | |||
Other expenses | |||
EBIT | $ | ||
Interest | |||
Taxable income | $ | ||
Taxes (50%) | |||
Net income | $ | ||
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 | $ | ||||
Fixed assets | Owners equity | ||||||
Net plant and equipment | $ | Common stock and paid-in surplus | $ | ||||
Accumulated retained earnings | |||||||
Total | $ | ||||||
Total assets | $ | Total liabilities and owners equity | $ | ||||
What external financing is needed to support the 20 percent growth rate in sales? (Do not round intermediate calculations.) |
EFN | $ |
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