(Solved)3(Solved) Executive Fruit’s financial manager believes that sales in


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I need some assistance with business finance. Please see attachment . BUSI 530 Tutor question 2.doc 3. Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs. a. Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.) Base Case 20% Growth 5% Growth INCOME STATEMENT Revenue $ Cost of goods sold EBIT Net income $ BALANCE SHEET Assets Net working capital $ Liabilities and shareholders’ equity Long-term debt Shareholders ‘ equity $ $ 320 $ 480 $ 320 $ $ 160 $ $ 1,000 $ $ $ 1200 960 384 576 384 200 1200 $ $ 5,000 $ $ 2,000 $ 3,000 $ 6000 2000 3600 1050 200 $ $ $ $ $ $ 4800 4,000 10,500 9,450 200 800 Fixed assets Total assets 1,000 1200 10800 200 Dividends Retained earnings $ 9,000 Interest Earnings before taxes State and federal tax 10,000 840 336 504 336 90 1050 4200 $ $ $ 5250 2000 3150 Total liabilities and shareholders’ equity $ 5,000 $ Required external financing $ 6000 800 $ $ 5250 320 b. Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.) BALANCE SHEET Base Case 20% Growth Assets Net working capital $ 1,000 Fixed assets Total assets Liabilities and shareholders’ equity Long-term debt Shareholders ‘ equity Total liabilities and shareholders’ equity $ $ 5,000 $ $ 2,000 $ 3,000 $ 5,000 $ 6000 2400 6000 INCOME STATEMENT, 2015 $ EBIT Interest expense $ Taxable $ 210,000 155,000 55,000 11,000 44,000 1050 4200 $ $ 3600 The 2015 financial statements for Growth Industries are presented below: Sales Costs $ 4800 4,000 $ 1200 5% Growth 5250 2100 3150 $ 5250 income Taxes (at 35%) 15,400 Net income Dividends Addition to retained earnings $ 28,600 $ 14,300 14,300 6. BALANCE SHEET, YEAR-END, 2015 Assets Liabilities Current assets Cash Current liabilities $ Accounts receivable Inventorie s Total current assets Net plant and equipment 4,000 9,000 Accounts payable Total current liabilities 27,000 $ 11,000 $ 11,000 Long-term debt 40,000 $ 110,000 Stockholders’ equity Common stock plus 150,000 additional paid-in capital 15,000 Retained earnings Total assets $ 190,000 Total liabilities and stockholders’ equity 54,000 $ 190,000 Sales and costs in 2016 are projected to be 20% higher than in 2015. Both current assets and accounts payable are projected to rise in proportion to sales. The fixed assets of Growth Industries are operating at only 75% of capacity. Interest expense in 2016 will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .50. What is the required external financing over the next year? Even if sales increase by 20%, the firm still has more than enough fixed assets to meet production. Only working capital will increase. Net working capital of the firm in 2015 was $ . The increase in net working capital will be $ , which is less than the increase in the retained earnings. Thus required external financing is $ . A negative external financing value indicates the firm will generate more cash than it needs to finance the projected growth. This extra cash can be used to reduce debt, repurchase shares, increase cash reserves, or fund future growth. This extra cash was primarily due to the firm’s excess production capacity. Read more

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