In: Finance
Given the financial statements below for Firefly Enterprises,
what is the external financing need for a pro forma increase in
sales of 11%? Enter your answer as the nearest whole (e.g., 123),
but do not include the $ sign.
Firefly Enterprises |
||
Income Statement ($ Million) |
2011 |
|
Sales |
740 |
|
Cost of Goods Sold |
452 |
|
Selling, General, & Admin Exp. |
124 |
|
Depreciation |
40 |
|
Earnings Before Interest & Taxes |
124 |
|
Interest Expense |
24 |
|
Taxable Income |
100 |
|
Taxes at 40% |
40 |
|
Net Income |
60 |
|
Dividends |
18 |
|
Addition to Retained Earnings |
42 |
|
Balance Sheets as of 12-31 |
||
Assets |
2010 |
2011 |
Cash |
20 |
20 |
Account Receivable |
102 |
110 |
Inventory |
76 |
80 |
Total Current Assets |
198 |
210 |
Net Fixed Assets |
352 |
410 |
Total Assets |
550 |
620 |
Liabilities and Owners Equity |
2010 |
2011 |
Accounts Payable |
62 |
70 |
Notes Payable |
0 |
0 |
Total Current Liabilities |
62 |
70 |
Long-Term Debt |
280 |
300 |
Common Stock |
34 |
34 |
Retained Earnings |
174 |
216 |
Total Liab. and Owners Equity |
550 |
620 |
A) Proforma income statement :
Sales increase @ 11%
Sales (740 + 11%) | 821.40 |
Less : | |
Cost of goods sold (452 + 11%) | (501.72) |
Selling & administration expenses (124 + 11%) | (137.64) |
Depriciation (same) | (40) |
Earnings before interest & tax | 142.04 |
Interest (same) | (24) |
Earnings before tax | 118.04 |
Less : Tax @ 40% (118.40 * 40%) | (47.22) |
Net income | 70.82 |
Less : Dividend (note) | (21.25) |
Addition to retained earnings | 49.57 |
Note : Calculations of dividend
Dividend payout ratio = Last dividend / Net income
Dividend about ratio = 18 / 60 = 0.3 or 30%
Now,
Exepected dividend = New net income * Dividend payout ratio
Expected dividend = $70.82 * 30% = 21.25
B) Proforma Balancesheet :
Assets | Amount |
Cash (20 + 11%) | 22.20 |
Accounts recievables (110 + 11%) | 122.10 |
Inventory (80 + 11%) | 88.80 |
Total current assets | 432.90 |
Net fixed assets (410 + 11%) | 455.10 |
Total assets | 888 |
Liabilities & owners equity | |
Accounts payable (70 + 11%) | 77.70 |
Notes payable | 0 |
Total current liabilities | 77.70 |
Long term debt (same) | 300 |
Common stock (same) | 34 |
Retained earnings (216 + 49.57) | 265.57 |
Total liabilities & owners equity | 677.27 |
External financing nedeed = Total assets - Total liabilities & owners equity
External financing nedeed = 888 - 677.27
External financing nedeed = 210.73
Note : All figures are in millions.