Krogh Lumber: Balance Sheet as of December 31, 2016 (Thousands
of Dollars)
Cash $1,800 Accounts payable $7,200
Receivables 10,800 Notes payable 3,472
Inventories 12,600 Accrued liabilities 2,520
Total current assets $25,200 Total current liabilities
$13,192
Mortgage bonds 5,000
Net fixed assets 21,600 Common stock 2,000
Retained earnings 26,608
Total assets $46,800 Total liabilities and equity
$46,800
Krogh Lumber: Income Statement for December 31, 2016
(Thousands of Dollars)
Sales $36,000
Operating costs including depreciation 30,783
Earnings before interest and taxes $5,217
Interest 1,017
Earnings before taxes $4,200
Taxes (40%) 1,680
Net income $2,520
Dividends (60%) $1,512
Addition to retained earnings $1,008
Assume that the company was operating at full capacity in 2016
with regard to all items except fixed assets; fixed assets in 2016
were being utilized to only 65% of capacity. By what percentage
could 2017 sales increase over 2016 sales without the need for an
increase in fixed assets? Round your answer to two decimal
places.
%
Now suppose 2017 sales increase by 25% over 2016 sales. Assume
that Krogh cannot sell any fixed assets. All assets other than
fixed assets will grow at the same rate as sales; however, after
reviewing industry averages, the firm would like to reduce its
operating costs/sales ratio to 84% and increase its total
liabilities-to-assets ratio to 42%. The firm will maintain its 60%
dividend payout ratio, and it currently has 1 million shares
outstanding. The firm plans to raise 35% of its 2017 forecasted
interest-bearing debt as notes payable, and it will issue bonds for
the remainder. The firm forecasts that its before-tax cost of debt
(which includes both short- and long-term debt) is 10.5%. Any stock
issuances or repurchases will be made at the firm's current stock
price of $40. Develop Krogh's projected financial statements. What
are the balances of notes payable, bonds, common stock, and
retained earnings? Round your answers to the nearest hundredth of
thousand of dollars.
Krogh Lumber Pro Forma Income Statement December 31, 2017
(Thousands of Dollars)
2016 2017
Sales $36,000 $?
Operating costs (includes depreciation) 30,783
EBIT $5,217 $?
Interest expense 1,017
EBT $4,200 $
Taxes (40%) 1,680
Net Income $2,520 $?
Dividends $1,512 $?
Addition to RE $1,008 $?
Krogh Lumber Pro Forma Balance Statement December 31, 2017
(Thousands of Dollars)
2016 2017
Assets
Cash $1,800 $?
Accounts receivable 10,800
Inventories 12,600
Fixed assets 21,600
Total assets $46,800 $?
Liabilities and Equity
Payables + accruals $9,720 $?
Short-term bank loans 3,472
Total current liabilities $13,192 $?
Long-term bonds 5,000
Total liabilities $18,192 $?
Common stock 2,000
Retained earnings 26,608
Total common equity $28,608 $?
Total liab. and equity $46,800 $?