Model Corp.'s most recent balance sheet and income statement are given below (all numbers in $...

Model Corp.'s most recent balance sheet and income statement are given below (all numbers in $ million): Assets Liabilities and Equity Cash 38 Accounts payable 114 Accounts receivable 76 Current liabilities 114 Inventory 114 Long-term debt 152 Current assets 228 Total liabilities 266 Machinary 152 Equity 114 Total assets 380 Total liab. & equity 380 Income statement Sales 110 Costs 66 Depreciation 22 EBIT 22 Interest 7.6 Taxable income 14.4 Taxes 4.896 Net income 9.5 Sales, assets and costs (including depreciation) are expected to grow by 40% next year, while the tax rate and long-term debt will stay constant. The company pays out 60% of net income as dividends.

Part a) Using the percentage of sales method, what will be the net income next year (in $ million)?

Part b) Using the percentage of sales method, what should be the book value of equity by end of next year as a result of net income and dividend payout before any EFN is funded (in $ million)?

Part c) What is the external financing needed (EFN) for next year (in $ million)?

Solutions

Expert Solution

Answer:

As per the given details for Model Corp, we have all the figures available for current year Balance Sheet and Income statement.

To get the next year figures , there are certain conditions given as

1. Sales, assets and costs (including depreciation) will grow by 40%

2. Tax rate and long-term debt will be same that means the tax rate will be calculated like below

Tax Rate = Total taxes for current year / Taxable Income = 4.896 / 14.4 = 34%

Also, as the long-term debt will be same for next year so, the interest will also be same in the next year

3. 60% of the net income will be paid as dividend so, the income available for equity will be 40% of Net income

Part a

Using the percentage of sales method, the net income for next year will be $15.31 million before payment of dividend and $6.12 million after payment of dividend (see below calculation)

Part b

Using the percentage of sales method, the book value of equity by end of next year as a result of net income and dividend payout before any EFN is funded will be $120.12 million

Value of equity = Equity of previous year plus net income available for retained earning after dividend payout

= 114 + 6.12 (see Income statement) = $120.12 million

Part c

External financing needed (EFN) for next year = Total Assets - Total liabilities and equity before EFN

So, EFN = 532 - 431.72 = $100.28 million

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Model Corp.'s most recent balance sheet and income statement are given below (all numbers in $...

Model Corp.'s most recent balance sheet and income statement are given below (all numbers in $ million): Assets Liabilities and Equity Cash 41 Accounts payable 123 Accounts receivable 82 Current liabilities 123 Inventory 123 Long-term debt 164 Current assets 246 Total liabilities 287 Machinary 164 Equity 123 Total assets 410 Total liab. & equity 410 Income statement Sales 90 Costs 54 Depreciation 18 EBIT 18 Interest 4.92 Taxable income 13.08 Taxes 4.447 Net income 8.63 Sales, assets and costs (including...

Model Corp.'s most recent balance sheet and income statement are given below (all numbers in $...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Statement of Financial Position...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Asset: Current assets: Cash $ 100 $ 110 Accounts receivable 210 220 Inventory 110 120 Prepaid expenses 10 10 Total current assets 430 460 Plant and equipment, net 900 880 Total assets $ 1,330 $ 1,340 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 160 $ 170 Accrued...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 220 $ 330 Accounts receivable, net 360 380 Inventory 330 300 Prepaid expenses 20 20 Total current assets 930 1,030 Plant and equipment, net 1,180 1,300 Total assets $ 2,110 $ 2,330 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 300 $ 330 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 170 $ 230 Accounts receivable, net 260 280 Inventory 230 200 Prepaid expenses 20 20 Total current assets 680 730 Plant and equipment, net 880 900 Total assets $ 1,560 $ 1,630 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 200 $ 230 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 190 $ 270 Accounts receivable, net 300 320 Inventory 270 240 Prepaid expenses 20 20 Total current assets 780 850 Plant and equipment, net 1,000 1,060 Total assets $ 1,780 $ 1,910 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 240 $ 270 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 160 $ 210 Accounts receivable, net 240 260 Inventory 210 180 Prepaid expenses 20 20 Total current assets 630 670 Plant and equipment, net 820 820 Total assets $ 1,450 $ 1,490 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 180 $ 210 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 180 $ 250 Accounts receivable, net 280 300 Inventory 250 220 Prepaid expenses 20 20 Total current assets 730 790 Plant and equipment, net 940 980 Total assets $ 1,670 $ 1,770 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 220 $ 250 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 180 $ 250 Accounts receivable, net 280 300 Inventory 250 220 Prepaid expenses 20 20 Total current assets 730 790 Plant and equipment, net 940 980 Total assets $ 1,670 $ 1,770 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 220 $ 250 Accrued liabilities 50...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year...

Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 180 $ 250 Accounts receivable, net 280 300 Inventory 250 220 Prepaid expenses 20 20 Total current assets 730 790 Plant and equipment, net 940 980 Total assets $ 1,670 $ 1,770 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 220 $ 250 Accrued liabilities 50...

Subjects