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In: Finance
Use the following information for Delta Corporation to answer question 1: Year 20X1 20X2 Net sales...
Use the following information for Delta Corporation to answer question 1:
|
Year |
20X1 |
20X2 |
|
Net sales |
$1,500,000 |
$1,656,598 |
|
Cost of goods sold |
675,000 |
745,469 |
|
Depreciation |
270,000 |
298,188 |
|
Interest paid |
43,600 |
44,000 |
|
Cash |
127,500 |
140,811 |
|
Accounts receivable |
450,000 |
496,980 |
|
Inventory |
525,000 |
579,809 |
|
Net fixed assets |
1,800,000 |
1,987,918 |
|
Accounts payable |
375,000 |
414,150 |
|
Notes payable |
45,000 |
50,000 |
|
Long-term debt |
500,000 |
500,000 |
|
Common stock |
1,000,000 |
1,000,000 |
|
Retained earnings |
982,500 |
1,241,368 |
|
Tax rate |
35% |
35% |
|
Dividend payout |
30% |
30% |
1. Delta has 600,000 common shares outstanding. The firm is projecting a 20% increase in net sales for the coming year (20X3). Delta uses the percentage of sales approach to plan for its financing needs. In using this approach, the firm assumes that cost of goods sold, all assets (current and fixed), and accounts payable will all remain a constant percentage of sales. Depreciation expense is assumed to be 15% of net fixed assets, while notes payable and long-term debt will remain at the same level as 20X2. The interest rate charged on notes payable and long-term debt is also expected to remain the same. The firm will aim to maintain its dividend payout of 30% for the foreseeable future.
a. Construct the pro-forma Statement of Comprehensive Income and Statement of Financial Position for Delta Corporation for 20X3. Calculate the external financing needed (EFN) for 20X3. Round all your numbers in the pro-forma statements to the nearest dollar.
b. Based on its 20X2 information, what is Delta’s capital intensity ratio? Round your answer to four decimal places.
c. What is Delta’s full capacity sales if it is currently operating at 80% capacity (20X2)? Round your answer to the nearest integer.
d. Recalculate the firm’s external financing needed (EFN) for 20X3 if Delta is only operating at 80% capacity. Assume that if the 20X3 net sales is lower than full capacity sales, then the net fixed assets in 20X3 will be the same as the net fixed assets in 20X2 (i.e., assume that the firm will purchase just enough fixed assets to cover depreciation expense for 20X3). Interpret this EFN number.
e. What is Delta’s internal growth rate for 20X2? Round your final answer in percentage to two decimal places.
f. What is Delta’s sustainable growth rate for 20X2? Round your final answer in percentage to two decimal places.
g. Assume that Delta is operating at 100% capacity. Calculate the EFN for the firm if it wants to grow its sales by 100% for 20X3. Interpret this EFN number.
Solutions
Expert Solution
| Year | 20X1 | 20X2 | 20X3 | |||||
| Net sales | $ 15,00,000.00 | $ 16,56,598.00 | $ 19,87,917.60 | as % of Net sales | ||||
| Cost of goods sold | $ 6,75,000.00 | $ 7,45,469.00 | $ 8,94,562.86 | Cost of goods sold | 45.00% | 45.00% | ||
| Depreciation | $ 2,70,000.00 | $ 2,98,188.00 | $ 3,57,825.24 | Cash | 9% | 9% | ||
| Interest paid | $ 43,600.00 | $ 44,000.00 | $ 44,000.00 | Accounts receivable | 30% | 30% | ||
| Cash | $ 1,27,500.00 | $ 1,40,811.00 | $ 1,68,973.20 | Inventory | 35% | 35% | ||
| Accounts receivable | $ 4,50,000.00 | $ 4,96,980.00 | $ 5,96,376.00 | Net fixed assets | 120% | 120% | ||
| Inventory | $ 5,25,000.00 | $ 5,79,809.00 | $ 6,95,770.80 | Accounts payable | 25% | 25% | ||
| Net fixed assets | $ 18,00,000.00 | $ 19,87,918.00 | $ 23,85,501.60 | Ans | ||||
| Accounts payable | $ 3,75,000.00 | $ 4,14,150.00 | $ 4,96,980.00 | a | EFR in 20X3 | Not required | ||
| Notes payable | $ 45,000.00 | $ 50,000.00 | $ 50,000.00 | b | Capital Intensity Ratio | 1.5624 | ||
| Long-term debt | $ 5,00,000.00 | $ 5,00,000.00 | $ 5,00,000.00 | c | Full Capacity Sales | $ 20,70,747.50 | ||
| Common stock | $ 10,00,000.00 | $ 10,00,000.00 | $ 10,00,000.00 | d | In this scenario, EFR | Not required | ||
| Retained earnings | $ 9,82,500.00 | $ 12,41,368.00 | $ 15,56,013.92 | |||||
| Tax rate | 35% | 35% | 35% | |||||
| Dividend payout | 30% | 30% | 30% | |||||
| Common shares outstanding | 600000.00 | 600000.00 | 600000.00 | |||||
| Current Account | $ 11,02,500.00 | $ 12,17,600.00 | $ 14,61,120.00 | |||||
| Current Liabilities | $ 4,20,000.00 | $ 4,64,150.00 | $ 5,46,980.00 | |||||
| Working capital | $ 6,82,500.00 | $ 7,53,450.00 | $ 9,14,140.00 | |||||
| Income statement | ||||||||
| Net sales | $ 15,00,000.00 | $ 16,56,598.00 | $ 19,87,917.60 | |||||
| Cost of goods sold | $ 6,75,000.00 | $ 7,45,469.00 | $ 8,94,562.86 | |||||
| Depreciation | $ 2,70,000.00 | $ 2,98,188.00 | $ 3,57,825.24 | |||||
| EBIT | $ 5,55,000.00 | $ 6,12,941.00 | $ 7,35,529.50 | |||||
| Interest paid | $ 43,600.00 | $ 44,000.00 | $ 44,000.00 | |||||
| Earnings after Interest before tax | $ 5,11,400.00 | $ 5,68,941.00 | $ 6,91,529.50 | |||||
| Tax | $ 1,78,990.00 | $ 1,99,129.35 | $ 2,42,035.33 | |||||
| Net Income | $ 3,32,410.00 | $ 3,69,811.65 | $ 4,49,494.18 | |||||
| Divident | $ 99,723.00 | $ 1,10,943.50 | $ 1,34,848.25 | |||||
| Net income to retained earnings | $ 2,32,687.00 | $ 2,58,868.16 | $ 3,14,645.92 | |||||
| Cash flow statement | ||||||||
| Net sales | $ 15,00,000.00 | $ 16,56,598.00 | $ 19,87,917.60 | |||||
| Cost of goods sold | $ 6,75,000.00 | $ 7,45,469.00 | $ 8,94,562.86 | |||||
| Depreciation | $ 2,70,000.00 | $ 2,98,188.00 | $ 3,57,825.24 | |||||
| EBIT | $ 5,55,000.00 | $ 6,12,941.00 | $ 7,35,529.50 | |||||
| Interest paid | $ 43,600.00 | $ 44,000.00 | $ 44,000.00 | |||||
| Earnings after Interest before tax | $ 5,11,400.00 | $ 5,68,941.00 | $ 6,91,529.50 | |||||
| Tax | $ 1,78,990.00 | $ 1,99,129.35 | $ 2,42,035.33 | |||||
| Net Income | $ 3,32,410.00 | $ 3,69,811.65 | $ 4,49,494.18 | |||||
| Divident | $ 99,723.00 | $ 1,10,943.50 | $ 1,34,848.25 |
 jeff jeffy answered 1 year agoRelated SolutionsUse the following information for Delta Corporation to answer question 1: (20 marks total) Year 20X1...Use the following information for Delta Corporation to answer
question 1: (20 marks total)
Year
20X1
20X2
Net sales
$1,500,000
$1,656,598
Cost of goods sold
675,000
745,469
Depreciation
270,000
298,188
Interest paid
43,600
44,000
Cash
127,500
140,811
Accounts receivable
450,000
496,980
Inventory
525,000
579,809
Net fixed assets
1,800,000
1,987,918
Accounts payable
375,000
414,150
Notes payable
45,000
50,000
Long-term debt
500,000
500,000
Common stock
1,000,000
1,000,000
Retained earnings
982,500
1,241,368
Tax rate
35%
35%
Dividend payout
30%
30%
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