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%

Solutions

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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