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In: Finance

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 depreciation) are expected to grow by 37% next year, while the tax rate and long-term debt will stay constant. The company will pay out 50% of net income as dividends next year.

  Attempt 1/10 for 10 pts.

Part 1

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

Solutions

Expert Solution

Preparing the Income Statement for next year Using the percentage of sales method:-

Particular Projected ($ in millions)
Sales 90*(1+37%)                 123.300
COGS 54*(1+37%)                 (73.980)
Gross Profit                   49.320
Depreciation 18*(1+37%)                 (24.660)
EBIT                   24.660
interest Remains same                   (4.920)
Taxable Income                   19.740
Taxation (34%) Remains same                   (6.712)
Net income                   13.028

Note- 1. Sales, assets and costs (including depreciation) are expected to grow by 37% next year

2. Interest expense will remain same as Long term debt is constant. So, Interest on same Long-term debt will be same as last year.

3. Tax rate will remain same. Tax rate = Taxes/Taxable income

Tax rate = $4.447/$13.08 = 34%

So, net Income for next year is $13.028 millions

jeff jeffy answered 3 years ago
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