Question

The most recent financial statements for Crosby, Inc., follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also 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.

CROSBY, INC. 2017 Income Statement
Sales				$	773,000
Costs					629,000
Other expenses					34,000
Earnings before interest and taxes				$	110,000
Interest paid					18,000
Taxable income				$	92,000
Taxes (25%)					23,000
Net income				$	69,000
Dividends	$	31,140
Addition to retained earnings		37,860

CROSBY, INC. Balance Sheet as of December 31, 2017
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	26,240		Accounts payable	$	65,400
Accounts receivable		35,760		Notes payable		20,600
Inventory		72,320		Total	$	86,000
Total	$	134,320		Long-term debt	$	121,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	116,000
Net plant and equipment	$	230,000		Retained earnings		41,320
				Total	$	157,320
Total assets	$	364,320		Total liabilities and owners’ equity	$	364,320

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 15% Sales Growth 20% Sales Growth 45% Sales Growth Sales Costs Other expenses EBIT Interest paid Taxable income Taxes (25%) Net income Dividends Add to RE

Calculate the EFN for 15, 20 and 45 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.)
	15% 20% 45% EFN

Answer 1

Answer -

Pro Forma Income Statement
	15% Sales Growth	20% Sales Growth	45% Sales Growth
Sales	888950	927600	1120850
Costs	723350	754800	912050
Other expenses	39100	40800	49300
EBIT	126500	132000	159500
Interest paid	18000	18000	18000
Taxable income	108500	114000	141500
Taxes (25%)	27125	28500	35375
Net income	81375	85500	106125
Dividends	36724.89	38586.52	47894.67
Add to RE	44650.11	46913.48	58230.33

As per given information current assets, fixed assets, and accounts payable increase spontaneously with sales

so,

	15%	20%	45%
Current Assets	154468	161184	194764
Fixed Assets	264500	276000	333500
Account Payable	75210	78480	94830
Total Asset	418986	437184	528264
Total Liabilities and Owner's Equity	374130	377400	393750

So,

EFN = Total Assets - Total Liabilities and Owner's Equity

	15%	20%	45%
EFN	44838	59784	134514