Question

The CFO of McDonald's has created a pro forma balance sheet for the next fiscal year. Sales are projected to grow by 15 percent to $602 million. Current assets, fixed assets, and short-term debt are 22 percent, 65 percent, and 15 percent of sales, respectively. McDonald's pays out 30 percent of its net income in dividends. The company currently has $180 million of long-term debt and $140 million in common stock par value. The profit margin is 12 percent. Based on the CFO s sales growth forecast, how much does McDonald's need in external funds for the upcoming fiscal year? (Hint: you need to construct the balance sheet this year and determine the accumulated retained earnings before constructing the proforma balance sheets to determine the EFN)

$5.97 million

$5.78 million

$5.36 million

$5.12 million

$4.83 million

Answer 1

Expected Sales = $602 million
Growth Rate = 15%

Current Sales * (1 + Growth Rate) = Expected Sales
Current Sales * 1.15 = $602 million
Current Sales = $523.48 million

Profit Margin = 12%
Payout Ratio = 30%

Net Income = Expected Sales * Profit Margin
Net Income = $602 million * 12%
Net Income = $72.24 million

Dividends = Net Income * Payout Ratio
Dividends = $72.24 million * 30%
Dividends = $21.68 million

Accumulated Retained Earnings = Net Income - Dividends
Accumulated Retained Earnings = $72.24 million - $21.68 million
Accumulated Retained Earnings = $50.56 million

External Fund Needed = $523.74 million - $517.77 million
External Fund Needed = $5.97 million