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Retro machine Inc 2016 income statement sales 762000 cost 597000 other expenses 18000 earnings before interest...

Retro machine Inc 2016 income statement sales 762000 cost 597000 other expenses 18000 earnings before interest and taxes 147000 interest paid 12000 taxable income 135000 taxes (4o%) 54000 Net income 81000 dividend 32400 addition to retain earnings 48600 Balanced Sheets Current Assets cash 22140 accounts receivable 34460 inventory 71420 total 128020 fixed assets net plant and equipment 230000 total assets 358020 current Liabilities account payable 56300 note payable 15500 total 71800 long term debt 121000 owners equity common stock and paid in surplus 131000 accumulated retained earnings 34220 total 358020 Q1 compute pro forma income statement at 15%, 20% and 25% sales growth Q2 compute pro forma balanced sheet at 15% ,20% and 25% sales growth Q3 Calculate the EFN to the nearest whole number 15%,20% and 25%

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Expert Solution

EFN = Needed increase in sales-Spontaneous increase in Trade liabilities-Increase in Retained Earnings
ie. EFN=(Total assets*Sales growth rate)-(Current liabilities *sales growth rate)-(new sales*Profit Margin*Retention Ratio)
NOTE: Notes payable, even though current liabilities, do not move along with sales--so they are not to be considered for EFN calculations. )
EFN at 15% sales growth
(358020*15%)-(56300*15%)-(876300*10.63%*60%)=
-10632
as the result is NEGATIVE, NO External Funds Needed.
EFN at 20% sales growth
(358020*20%)-(56300*20%)-(914400*10.63%*60%)=
2024
EFN =2024
EFN at 20% sales growth
(358020*25%)-(56300*25%)-(952500*10.63%*60%)=
14680
EFN=14680
VERIFICATION workings 2016 Proforma Income Statement
*1.15 *1.20 *1.25
Sales 762000 876300 914400 952500
Cost -597000 -686550 -716400 -746250
Other expenses -18000 -20700 -21600 -22500
EBIT 147000 169050 176400 183750
Interest paid -12000 -13800 -14400 -15000
Taxable Income 135000 155250 162000 168750
Taxes at 40% -54000 -62100 -64800 -67500
Net income 81000 93150 97200 101250
Dividend(Net Income*40%) 32400 37260 38880 40500
Addition to Retained earnings(Net income*60%) 48600 55890 58320 60750
Net Income %
81000/762000=
10.63%
Dividend %
32400/81000=
40%
Retained earnings %
(1-40%)=
60%
48600/81000=
60%
Balance Sheet Proforma Balance Sheet
*1.15 *1.20 *1.25
Current Assets
Cash 22140 25461 26568 27675
Accounts Receivables 34460 39629 41352 43075
Inventory 71420 82133 85704 89275
Total 128020 147223 153624 160025
Fixed assets
Net plant&Equipment 230000 264500 276000 287500
Total assets 358020 411723 429624 447525
Current Liabilities
Account payable 56300 64745 67560 70375
Note payable 15500 15500 15500 15500
Total 71800 80245 83060 85875
Long-Term debt 121000 121000 121000 121000
Owners' equity
Common stock & paid-in surplus 131000 131000 131000 131000
Accumulated Retained earnings (as below) 34220 90110 92540 94970
Total Liabilities & Equity 358020 422355 427600 432845
EFN (Balancing Figure) -10632 2024 14680
Total of the assets side 358020 411723 429624 447525
Retained earnings :
2016 retained earnings 34220 34220 34220
Proforma Net income for the year 55890 58320 60750
Total 90110 92540 94970

ekkarill92 answered 1 year ago
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