In: Finance
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)?
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