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.

Compute the new level of net income for the company. [ Select ] ["$53,202", "$58,486", "$92,927"]

Compute the company's addition to retained earnings for the year. [ Select ] ["$23,800", "$31,202", "$34,567"]

Compute the new level of total assets required. [ Select ] ["$1,582.34", "$1,272,680", "$1,815,880"]

Calculate the new level of current liabilities [ Select ] ["$571,720", "$461,341", "$592,287"]

Compute the company's new level of retained earnings on the balance sheet [ Select ] ["$257,190", "$243,800", "$266,674"]

Calculate the level of Additional Funds Needed (AFN) to support the increase in sales. [ Select ] ["$57,281", "$102,358", "$116,356"]

IS & BS HW 15 & 16

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

Annotations

  

Answer 1

Assuming the expenses other than interest expense increases in proportion to sales
	2015		Performa
Sales	$3,850,000	3850000*1.1	$4,235,000
Cost of goods sold	$3,250,000	3250000*1.1	$3,575,000
Gross profit	$600,000		$660,000
Other expenses	$430,300	430300*1.1	$473,330
Depreciation	$20,000	20000*1.1	$22,000
EBIT	$149,700		$164,670
Interest expense	$76,000		$76,000
EBT	$73,700	73700*1.1	$88,670
Taxes (40%)	$29,480	88670*40%	$35,468
Net Income	$44,220		$53,202
EPS	$0.44		$0.53
Dividend payment		0.22*100000	$22,000
Addition to retained earnings			$31,202
Assuming all the assets increases in proportion to sales and current liabilities other than notes payable increases in proportion to sales
Balance Sheet
		2015		Performa
Assets
Cash		$52,000	52000*1.1	$57,200
Accounts receivable		$402,000	402000*1.1	$442,200
Inventories		$836,000	836000*1.1	$919,600
Total current assets		$1,290,000		$1,419,000
Gross fixed assets	$527,000
Less: Accumulated depreciation	-$166,200	$360,800	360800*1.1	$396,880
Total assets		$1,650,800		$1,815,880
Liabilities and equity
Accounts payable		$175,200	175200*1.1	$192,720
Notes payable		$225,000		$225,000
Accruals		$140,000	140000*1.1	$154,000
Total current liabilities		$540,200		$571,720
Long term debt		$424,612		$424,612
Common stock		$460,000		$460,000
Retained earnings		$225,988	225988+31202	$257,190
Total equity		$685,988		$717,190
Total liabilities and equity		$1,650,800		$1,713,522
The additional fund needed to support the increase in sales = 1815880-1713552				$102,358
The new level of net income is $53,202
The addition to retained earnings is $31,202
The new level of total assets is $1,815,880
The new level of current liabilities is $571,720
The new level of retained earnings is $257,190
The additional fund needed is $102,358