Question

Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION Income Statement
Sales				$	47,900
Costs					33,900
Taxable income				$	14,000
Taxes (21%)					2,940
Net income				$	11,060
Dividends	$	2,300
Addition to retained earnings		8,760

The projected sales growth rate is 12 percent.

Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant.

Answer 1

	Given that
	HEIR JORDAN CORPORATION
	Income Statement
	Sales		47,900
	Costs		33,900
	Taxable income		14,000
	Taxes (21%)		2,940
	Net income		11,060
	Dividends	$	2,300
	Addition to retained earnings		8,760
	Cost as % of sales = 33900/47900		70.77%
	Dividend payout ratio =2300/11060		20.80%
	Performa statement
	HEIR JORDAN CORPORATION
	Income Statement
i	Sales	47900*112%	53,648
ii=70.77% *i	Costs		37,968
iii=i-ii	Taxable income		15,680
iv=iii*21%	Taxes (21%)		3,293
v=iii-iv	Net income		12,387
vi=v*20.80%	Dividends	$	2,576
vii=v-vi	Addition to retained earnings		9,811