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.

SCOTT, INC. 2019 Income Statement
Sales				$	765,000
Costs					621,000
Other expenses					30,000
Earnings before interest and taxes				$	114,000
Interest expense					14,800
Taxable income				$	99,200
Taxes (22%)					21,824
Net income				$	77,376
Dividends	$	24,840
Addition to retained earnings		52,536

SCOTT, INC. Balance Sheet as of December 31, 2019
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	25,440		Accounts payable	$	62,200
Accounts receivable		34,880		Notes payable		18,200
Inventory		71,600		Total	$	80,400
Total	$	131,920		Long-term debt	$	113,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	108,000
Net plant and equipment	$	222,000		Retained earnings		52,520
				Total	$	160,520
Total assets	$	353,920		Total liabilities and owners’ equity	$	353,920

Complete the pro forma income statements below. (Input all answers as positive values. Do not round intermediate calculations.)

Calculate the EFN for 20, 25 and 30 percent growth rates. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

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Answer 1

Solution:-

1. Complete the pro forma income statements below. (Input all answers as positive values. Do not round intermediate calculations.):-

2. Calculate the EFN for 20, 25 and 30 percent growth rates:-

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