Question

The most recent financial statements for Scott, Inc., appear below. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant.

SCOTT, INC. 2019 Income Statement
Sales				$	756,000
Costs					612,000
Other expenses					25,500
Earnings before interest and taxes				$	118,500
Interest expense					11,200
Taxable income				$	107,300
Taxes (23%)					24,679
Net income				$	82,621
Dividends	$	41,340
Addition to retained earnings		41,281

SCOTT, INC. Balance Sheet as of December 31, 2019
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	24,540		Accounts payable	$	58,600
Accounts receivable		33,890		Notes payable		15,500
Inventory		70,790		Total	$	74,100
Total	$	129,220		Long-term debt	$	104,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	99,000
Net plant and equipment	$	213,000		Retained earnings		65,120
				Total	$	164,120
Total assets	$	342,220		Total liabilities and owners’ equity	$	342,220

Complete the pro forma income statements below. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Pro – Forma Income Statement
	10% Sales Growth	15% Sales Growth	40% Sales Growth
Sales
Costs
Other Expenses
EBIT
Interest Expense
Taxable Income
Taxes (23%)
Net Income
Dividends
Add to RE

Calculate the EFN for 10, 15 and 40 percent growth rates. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.)

	10%	15%	40%
EFN

Answer 1

Answer:

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