Question

In: Finance

Given the financial statements below for Firefly Enterprises, what is the external financing need for a...

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

Solutions

Expert Solution

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.


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