Question
The most recent financial statements for Retro Machine,Inc., follow. Sales for 2014 are projected to grow by 25 percent. Interest expense will remain constant; the
The most recent financial statements for Retro Machine,Inc., follow. Sales for 2014 are projected to grow by 25 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$750,000Costs585,000Other expenses21,000Earnings before interest and taxes$144,000Interest paid17,000Taxable income$127,000Taxes (20%)25,400Net income$101,600Dividends$20,320Addition to retained earnings81,280
RETRO MACHINE, INC.
Balance Sheet as of December 31, 2013
AssetsLiabilities and Owners' EquityCurrent assetsCurrent liabilitiesCash$20,940Accounts payable$55,100Accounts receivable33,260Notes payable14,300Inventory70,220Total$69,400Total$124,420Long-term debt$133,000Fixed assetsOwners' equityNet plant and equipment$360,000Common stock and paid-in surplus$119,000Accumulated retained earnings163,020Total$282,020Total assets$484,420Total liabilities and owners' equity$484,420
The firm is operating at full capacity and no new debt or equity is issued. Calculate the pro forma income statement and balance sheet for the company.(Do not round intermediate calculations.)
Pro Forma Income Statement
Sales$CostsOther expensesEBIT$InterestTaxable income$Taxes (20%)Net income$
Pro Forma Balance Sheet
AssetsLiabilities and Owners' EquityCurrent assetsCurrent liabilitiesCash$Accounts payable$Accounts receivableNotes payableInventoryTotal$Total$Long-term debt$Fixed assetsOwners' equityNet plant and equipment$Common stock and paid-in surplus$Accumulated retained earningsTotal$Total assets$Total liabilities and owners' equity$
What external financing is needed to support the 25 percent growth rate in sales?(Do not round intermediate calculations.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started