Question

QUESTION 20

1. Given the financial statements below for Dragonfly Enterprises, what is the external financing need for a pro forma increase in sales of 19% if the company is operating at 90% capacity? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.
   
     

   Dragonfly Enterprises
   Income Statement ($ Million)		2011
   Sales		370
   Cost of Goods Sold		226
   Selling, Gen & Admin Exp		62
   Depreciation		20
   Earnings Before Int & Tax		62
   Interest Expense		12
   Taxable Income		50
   Taxes at 40%		20
   Net Income		30
   Dividends		9
   Addition to Retained Earn.		21
   Balance Sheets as of 12-31
   Assets	2010	2011
   Cash	10	10
   Account Receivable	46	50
   Inventory	43	45
   Total Current Assets	99	105
   Net Fixed Assets	166	195
   Total Assets	265	300
   Liabilities and Owners Equity	2010	2011
   Accounts Payable	26	30
   Notes Payable	0	0
   Total Current Liabilities	26	30
   Long-Term Debt	140	150
   Common Stock	22	22
   Retained Earnings	77	98
   Total Liab. and Owners Eq	265	300

QUESTION 19

1. Given the financial statements below for Dragonfly Enterprises, what is the external financing need for a pro forma increase in sales of 8% if the company is operating at full capacity? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.
   
     

   Dragonfly Enterprises
   Income Statement ($ Million)		2011
   Sales		370
   Cost of Goods Sold		226
   Selling, Gen & Admin Exp		62
   Depreciation		20
   Earnings Before Int & Tax		62
   Interest Expense		12
   Taxable Income		50
   Taxes at 40%		20
   Net Income		30
   Dividends		9
   Addition to Retained Earn.		21
   Balance Sheets as of 12-31
   Assets	2010	2011
   Cash	10	10
   Account Receivable	46	50
   Inventory	43	45
   Total Current Assets	99	105
   Net Fixed Assets	166	195
   Total Assets	265	300
   Liabilities and Owners Equity	2010	2011
   Accounts Payable	26	30
   Notes Payable	0	0
   Total Current Liabilities	26	30
   Long-Term Debt	140	150
   Common Stock	22	22
   Retained Earnings	77	98
   Total Liab. and Owners Eq	265	300

Answer 1

Question 20:

Change in sales = Existing sales*19% = 370*19% = 70.30

New sales = Existing sales+Change in sales = 370+70.30 = 440.30

dpo = Dividends/Net profit = 9/30 = 0.3
External financing needed at 100% capacity = [Total assets*Change in sales/Existing sales]-[Current liabilities*Change in sales/Existing sales]-[New sales*Net profit/Existing sales*(1-dpo)] = (300*70.3/370)-(30*70.3/370)-(440.30*30/370*(1-0.3)) = 57-5.7-24.99 = 26.31

External financing needed at 90% capacity = External financing needed at 100% capacity/90% = 26.31/90% = 29.23

Note: All figures in millions

Question 19:

Change in sales = Existing sales*8% = 370*8% = 29.60

New sales = Existing sales+Change in sales = 370+29.60 = 399.60

dpo = Dividends/Net profit = 9/30 = 0.3
External financing needed at 100% capacity = [Total assets*Change in sales/Existing sales]-[Current liabilities*Change in sales/Existing sales]-[New sales*Net profit/Existing sales*(1-dpo)] = (300*29.6/370)-(30*29.6/370)-(399.60*30/370*(1-0.3)) = 24-2.4-22.68 = -1.08

Note: All figures in millions