In: Finance
The latest income statement, balance sheet and other related information for ABC Company is as follows:
Net Sales Revenue = $1,000,000
COGS = $600,000 (60% of Sales)
Operating Expenses = $200,000 (20% of Sales)
Interest Expense = $20,000 (10% of Long Term Debt)
Tax Expense = $54,000 (30% of Earnings Before Taxes)
Net Income = $126,000
Addition to Retained Earnings = $88,200 (70% of Net Income)
Current Assets = $700,000 (70% of Sales)
Net Fixed Assets = $900,000 (90% of Sales)
Current Liabilities = $200,000 (20% of Sales)
Long Term Debt = $200,000 (n/a)
Common Stock = $300,000 (n/a)
Retained Earnings = $900,000 (n/a)
1. Given the existing information, the Sustainable Growth Rate is (please round up to the nearest integer percentage such as 8): %
From now on, please assume that the company's sales will grow at 8% for the following year. Estimate the following regarding the proforma statements.
2. The proforma EBIT is: $
3. The initial proforma Interest Expense estimation is: $
4. Assuming the same tax rate of 30%, the proforma net income is: $
5. Assuming the same plowback ratio of 70%, the proforma addition to retained earnings is: $
6. Assuming 100% capacity usage, the proforma TOTAL assets are: $
7. The proforma current liabilities are: $
8. The proforma retained earnings are: $
9. The External Financing Need is: $
10. Assuming the EFN will be fulfilled by increasing the LTD, the proforma LTD (to balance the balance sheet) is: $
11. With the updated LTD you just calculated, assuming a 10% interest rate, the corrected interest expense (end of first iteration) is: $
12. If the current capacity usage is at 80%, then the proforma net fixed assets are: $
Since there are multiple subparts, i will be answering the first 4 subparts.
1.Computation of sustainable growth rate:
Excel spread sheet:
Excel workings:
2. Computation of EBIT:
Excel spread sheet:
Excel workings:
3. Computation of initial proforma expense:
The interest expenses will remain same as $20,000 since there is no change in long term debt.
4. Computation of net income:
Excel spread sheet:
Excel workings: