Question

Farnsbeck Inc. is forecasting a 10% increase in sales next year. Assume the company is operating at 100% capacity. The company has 100,000 shares of common stock outstanding and dividends are $0.22 per share.

1. Compute the new level of income for the company.

(A) $53,202 (B) $58,486 (C) $92,927

2. Compute the company's addition to retained earnings for the year.

(A) $23,800 (B) $31,202 (C) $34,567

3. Compute the new level of total assets required.

(A) $1,582,34 (B) $1,272,680 (C) $1,815,808

4. Calculate the new level of current liabilities.

(A) $571,720 (B) $461,341 (C) $592,287

5. Compute the company's new level of retained earnings on the balance sheet.

(A) $257,190 (B) $243,800 (C) $266,674

6. Calculate the level of Additional Funds Needed (AFN) to support the increase in sales.

(A) $57,281 (B) $102,358 (C) $116,356

ASSETS
	2015	2014
CASH	$52,000	$57,600
ACCOUNTS RECEIVABLE	402,000	351,200
INVENTORIES	836,000	715,200
TOTAL CURRENT ASSETS	$1,290,000	$1,124,000
GROSS FIXED ASSETS	527,000	491,000
LESS: ACCUMULATED DEPRECIATION	-166,200	-146,200
NET FIXED ASSETS	$360,800	$344,800
TOTAL ASSETS	$1,650,800	$1,468,800
LIABILITIES AND EQUITY
ACCOUNTS PAYABLE	$175,200	$145,600
NOTES PAYABLE	225,000	200,000
ACCRUALS	140,000	136,000
TOTAL CURRENT LIABILITIES	$540,200	$481,600
LONG?TERM DEBT	424,612	323,432
COMMON STOCK	460,000	460,000
RETAINED EARNINGS	225,988	203,768
TOTAL EQUITY	$685,988	$663,768
TOTAL LIABILITIES AND EQUITY	$1,650,800	$1,468,800
INCOME STATEMENTS
	2015	2014
SALES	$3,850,000	$3,432,000
COST OF GOODS SOLD	-3,250,000	-2,864,000
GROSS PROFIT	600,000	568,000
OTHER EXPENSES	-430,300	-340,000
DEPRECIATION	-20,000	-18,900
EBIT	$149,700	$209,100
INTEREST EXPENSE	-76,000	-62,500
EBT	$73,700	$146,600
TAXES (40%)	-29,480	-58,640
NET INCOME	$44,220	$87,960
EPS	$0.44	$0.88

Answer 1

1. A 53202

2. B. 31202

INCOME STATEMENTS
	2016	2015	2014
SALES	4235000	$3,850,000	$3,432,000
COST OF GOODS SOLD	3,575,000	-3,250,000	-2,864,000
GROSS PROFIT	660,000	600,000	568,000
OTHER EXPENSES	473,330	-430,300	-340,000
DEPRECIATION	22,000	-20,000	-18,900
EBIT	164,670	$149,700	$209,100
INTEREST EXPENSE	-76,000	-76,000	-62,500
EBT	88,670	$73,700	$146,600
TAXES (40%)	35468	-29,480	-58,640
NET INCOME	53,202	$44,220	$87,960
EPS	0.53	$0.44	$0.88

Dividend Payable@ 0.22 for 100000 Shares	100000*0.22 = 22000
Retained Earnings	53202-22000 = 31202