Question

In: Accounting

Consider the following recent financials for XYZ Corporation: Income Statement Balance Sheet Sales 73,802 Assets 209,087...

Consider the following recent financials for XYZ Corporation:

Income Statement

Balance Sheet

Sales

73,802

Assets

209,087

Debt

38,278

Costs

44,281

Equity

170,809

EBIT

29,521

Taxes @ 38%

11,218

Total

209,087

Total

209,087

Net Income

18,303

    

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,907 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to grow by 25%.

What is the pro-forma value for equity? (Round answer to 2 decimal places. Do not round intermediate calculations).

What is the external financing needed using the pro-forma approach? (Round answer to 2 decimal places. Do not round intermediate calculations).

What is the internal growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).

What is the sustainable growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).

Solutions

Expert Solution

Income Statement % Balance Sheet
Sales 73,802 100% Assets 209,087 Debt 38,278
Costs 44,281 60% Equity 170,809
EBIT 29,521 40%
Taxes @ 38% 11,218 15.20% Total 209,087 Total 209,087
Net Income 18,303 24.80%
Dividend 2,907
Payout ratio 15.88264% Asset T/O 35.297269%
(sales/TA)
Assuming costs and assets increase proportionally, the pro forma financial statements will look like this:
Proforma Proforma
Income Statement balance sheet
Sales (73802 x 125%) $              92,252.50 Assets (92252.50/35.297269%) $261,358.75 Debt
(261358.75-190053.89)		 71,304.86
Costs (60% of sales)                  55,351.50 Equity 190,053.89
EBIT $              36,901.00 (170809+19244.89)
Taxes @ 38%                  14,022.38 Total 261,358.75 Total 261,358.75
Net Income $              22,878.62
Dividend (15.88264%)                             3,633.73
Addition to Equity $                      19,244.89 EFN Needed 33026.86
(71304.86-38278)
Internal Growth rate = (ROA x b) / [1-(ROA xb)
ROA = NI/TA 18303/209087
0.087537724
b = 1-payout ratio 84.117358%
Internal Growth rate = (.087537724 x 84.117358%) / [1-(.087537724 x 84.117358%)]
7.95%
Sustainable Growth rate = (ROE x b) / [1-(ROE xb)
ROE = NI/TE 18303/170809
0.107154775
b = 1-payout ratio 84.117358%
Sustainable Growth rate = (.107154775 x 84.117358%) / [1-(.087537724 x 84.117358%)]
9.73%
Ans.
a. 190,053.89
b. 33026.86
c. 7.95%
d. 9.73%
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ekkarill92 answered 3 years ago
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