Question

Kramerica Industries (KI)
2019 Income Statement
Sales	1563.7
Cost of goods sold	1081.1
Selling & administrative expenses	231.1
Depreciation	83.1
Earnings before interest and taxes	?
Interest expense	5.6
Earnings before taxes	?
Taxes	44.3
Net income	?
Dividends	23.7
Additions to retained earnings	?

Kramerica Industries (KI)
2018 and 2019 Balance Sheets
	2018	2019		2018	2019
Cash	16.6	288.5	Accounts payable	325	349.3
Accounts receivable	268.8	306.2	Notes payable	4.2	10.5
Inventory	372.7	423.8	Accrued taxes	16.8	18
Other current assets	29.9	21.3	Long-term debt	343.6	574
Net fixed assets	394.2	399.4	Common stock	50	50
Goodwill and other assets	450	450	Additional paid-in capital	819.6	819.6
			Retained earnings	?	?
Total assets	?	?	Total liabilities and equity	?	?

KI's cash flow to stockholders in 2019 is _____.

a.

$31.2

b.

-$11.3

c.

-$29.8

d.

$23.7

KI's cash flow to creditors in 2019 is _____.

	a.	$301.9
	b.	-$166.7
	c.	-$224.8
	d.	$239.6

KI's internal growth rate in 2019 is _____.

	a.	2.14%
	b.	6.34%
	c.	1.88%
	d.	5.28%

Answer 1

- Preparing the Income Statement & Balance Sheet:-

Particular	Amount in $
Sales	1,563.70
Less: COGS	(1,081.10)
Less; Selling & Admin Exp.	(231.10)
Less: Depreciation	(83.10)
EBIT	168.40
Interest Expenses	(5.60)
Earning before tax	162.80
Taxes	(44.30)
Net Income	118.50
Less: Common Stock Dividends	(23.70)
Contribution to Retained earnings	94.80

ASSETS	2018	2019	LIABILITIES	2018	2019
Current Assets
Cash	16.60	288.5	Accounts payable	325.00	349.3
Accounts receivables	268.80	306.2	Notes Payable	4.20	10.5
Inventory	372.70	423.8	Accured Taxes	16.80	18
Other Current Assets	29.90	21.3	Long-term Debt	343.60	574
Net Fixed Assets	394.20	399.4	Common Stocks	50.00	50
Goodwill and Other Assets	450.00	450	Additional paid-in capital	819.60	819.6
			Retained Earnings	(27.00)	67.80
TOTAL ASSETS	1,532.20	1,889.20	TOTAL LIABILITIES AND OWNER"S EQUITY	1,532.20	1,889.20

- Cash flow to stockholders = Dividend Paid - New Common Stock Issued

KI's cash flow to stockholders in 2019 = 23.7 - 0

= $23.7

Hence, Option D

- Cash flow to Creditors = Interest Expenses - New Debt Issued

KI's cash flow to Creditors in 2019 = $5.6 - ($574 - 343.60)

= $5.6 - $230.4

=- $224.8

Hence, Option C

- Internal Growth rate = (ROA*b)/1-(ROA*b)

where, ROA = Return on Assets for 2019 = Net Income/Total Assets

= $118.50/$1889.20

= 6.2725%

b = Retention Ratio for 2019 = Retainted Earnings/Net Income

= $94.80/$118.50

=80%

Internal Growth rate = (0.062725*0.80)/1-(0.062725*0.80)

= 0.05018/1-0.05018 = 0.05018/0.94982

= 5.28%

Hence, option D

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