Question

QUESTION 1

Given the financial statements below for Firefly Enterprises, what is the external financing need for a pro forma increase in sales of 5%? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.

  

Firefly Enterprises
Income Statement ($ Million)		2011
Sales		740
Cost of Goods Sold		452
Selling, General, & Admin Exp.		124
Depreciation		40
Earnings Before Interest & Taxes		124
Interest Expense		24
Taxable Income		100
Taxes at 40%		40
Net Income		60
Dividends		18
Addition to Retained Earnings		42
Balance Sheets as of 12-31
Assets	2010	2011
Cash	20	20
Account Receivable	102	110
Inventory	76	80
Total Current Assets	198	210
Net Fixed Assets	352	410
Total Assets	550	620
Liabilities and Owners Equity	2010	2011
Accounts Payable	62	70
Notes Payable	0	0
Total Current Liabilities	62	70
Long-Term Debt	280	300
Common Stock	34	34
Retained Earnings	174	216
Total Liab. and Owners Equity	550	620

Answer 1

Firefly Enterprises
Income Statement ($ Million)		2011	2012
Sales		740	777.00
Cost of Goods Sold		452	474.60
Selling, General, & Admin Exp.		124	130.20
Depreciation		40	40.00
Earnings Before Interest & Taxes		124	132.20
Interest Expense		24	24.00
Taxable Income		100	108.20
Taxes at 40%		40	43.28	Assuming all expenses and net income also increases by 5%
Net Income		60	64.92
Dividends		18	19.48
Addition to Retained Earnings		42	45.44
Balance Sheets as of 12-31
Assets	2010	2011	2012
Cash	20	20	21.00
Account Receivable	102	110	115.50
Inventory	76	80	84.00
Total Current Assets	198	210	220.50	Assuming CA increases by 5% & FA remains same
Net Fixed Assets	352	410	410
Total Assets	550	620	630.50
Liabilities and Owners Equity	2010	2011	2012
Accounts Payable	62	70	73.5	Assuming AP increases by 5%
Notes Payable	0	0	0
Total Current Liabilities	62	70	73.5
Long-Term Debt	280	300	300
Common Stock	34	34	34
Retained Earnings	174	216	261.44
Total Liab. and Owners Equity	550	620	668.94
Additional external financing required			-38.44
So debt needs to be repaid by 38.44 million