Question

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.

Part 1

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

2. Using the percentage of sales method, what should be the book value of equity by end of next year as a result of net income and dividend payout before any EFN is funded (in $ million)?

3. What is the external financing needed (EFN) for next year (in $ million)?

Solutions

Expert Solution

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

Net Income = 13.029 Million

2. Using the percentage of sales method, what should be the book value of equity by end of next year as a result of net income and dividend payout before any EFN is funded (in $ million)?

Ending Value of Equity = Current Value + Addition to retained earnings = $123 M + 6.514 M = $129.514 M

3. What is the external financing needed (EFN) for next year (in $ million)?

EFN = Total projected assets - Total Projected liabilities = $561.70 - 462.02 = $99.68 M

jeff jeffy answered 2 years ago
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