Question

The most recent financial statements for Hopington Tours Inc. follow. Sales for 2016 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales. The firm is operating at full capacity and no new debt or equity is issued.

  

HOPINGTON TOURS INC. 2015 Statement of Comprehensive Income
Sales				$	746,000
Costs					581,000
Other expenses					17,000
Earnings before interest and taxes				$	148,000
Interest paid					14,000
Taxable income				$	134,000
Taxes (35%)					46,900
Net income				$	87,100
Dividends	$	21,440
Addition to retained earnings		65,660

  

HOPINGTON TOURS INC. Statement of Financial Position as of December 31, 2015
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	25,600		Accounts payable	$	68,300
Accounts receivable		41,000		Notes payable		17,300
Inventory		87,200		Total	$	85,600
Total	$	153,800		Long-term debt	$	129,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	143,000
Net plant and equipment	$	322,400		Retained earnings		118,600
				Total	$	261,600
Total assets	$	476,200		Total liabilities and owners’ equity	$	476,200

  

Complete the pro forma statement of comprehensive income below. (Input all amounts as positive values.)

  

HOPINGTON TOURS INC. Pro Forma Statement of Comprehensive Income
	25 % Sales Growth
Sales	$
Costs
Other expenses
EBIT	$
Interest
Taxable income	$
Taxes (35%)
Net income	$
Dividends	$
Add. to RE

  

Complete the pro forma statement of financial position below.

  

HOPINGTON TOURS INC. Pro Forma Statement of Financial Position
Assets			Liabilities and Owners’ Equity
Current assets			Current liabilities
Cash	$		Accounts payable	$
Accounts receivable	$		Notes payable	$
Inventory	$		Total	$
Total	$		Long-term debt	$
			Owners’ equity
Fixed assets			Common stock and paid-in surplus	$
Net plant and equipment	$		Retained earnings	$
			Total	$
Total assets	$		Total liabilities and owners’ equity	$

  

Calculate the EFN for 25 percent growth rates.

  

	25%
EFN	$

Answer 1