Tutorial 9 questions - Tutorial 9#1 The most recent financial statements for Summer Tyme Inc are shown here Tutorial 9 Tutorial#1 9 The mostStatement

Tutorial 9 questions - Tutorial 9#1 The most recent...

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Unformatted text preview: Tutorial 9 #1: The most recent financial statements for Summer Tyme, Inc., are shown here: Tutorial 9 Tutorial #1: 9 The mostStatement recent financial statements for Summer Income BalanceTyme, SheetInc., are shown here: #1: $4,200statements Currentfor assets $3,600 Current TheSales most recent financial Summer Tyme, Inc., are liabilities shown here: Costs 3,300 Fixed assets 7,900 Long-term debt Income Statement $900 Balance SheetEquity Taxable $2,100 3,650 5,750 income Sales $4,200 Current assets $3,600 Current liabilities $2,100 Taxes 306 Fixed Total assets $11,500 Total $11,500 Costs (34%) 3,300 7,900 Long-term debt 3,650 Net income $594 Taxable $900 Equity 5,750 income Taxes (34%) 306 Total $11,500 Total $11,500 Net income $594 liabilities are proportional to sales. Long-term debt and equity Assets, costs and current are not. The company maintains a constant 40% dividend payout ratio. As with every Assets, liabilities are proportional to sales.toLong-term debt and equity othercosts firm and in itscurrent industry, next year’s sales are projected increase by exactly 15%. are not. The company maintains a constant 40% dividend payout ratio. As with every other firm in its industry, next What is costs the external financing needed? Assets, and current liabilities are proportional to sales. Long-term debt and equity year’s sales are projected to increase by exactly 15%. What is the external financing needed? are not. The company maintains a constant 40% dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15%. What is the external financing needed? #2: #2: TheThe most recent financial statements for for Live Co.Co. areare shown here: most recent financial statements Live shown here: Income Statement Balance Sheet #2: Sales $13,250 Current $10,400 Debt $17,500 The most recent financial statements forAssets Live Co. are shown here: Costs 9,480 Fixed assets 28,750 Equity 21,650 Income Statement Balance Sheet Taxable $3,770 Current Total Assets $39,150 Debt Total $39,150 Sales $13,250 $10,400 $17,500 income Costs 9,480 Fixed assets 28,750 Equity 21,650 Taxes (35%) 1,508 Taxable $3,770 Total $39,150 Total $39,150 Net income $2,262 income Taxes (35%) 1,508 Assets and costs are proportional to sales. DebtDebt and and equity are are not.not. The The company maintains a constant 30 Assets and costs are proportional to sales. equity company Net income percent dividend payout$2,262 ratio. No external equity financing is possible. What is the internal growth rate? maintains a constant 30 percent dividend payout ratio. No external equity financing is possible. What is the internal growth rate? Assets and costs are proportional to sales. Debt and equity are not. The company #3: #3: maintains a constant 30 percent dividend payout ratio. No external equity financing is ForFor the the company previous problem, whatwhat is the growth rate?rate? possible. Whatinisthe internal growth rate? company inthethe previous problems, is sustainable the sustainable growth #3: #4: For the company in the previous problems, what is the sustainable growth rate? McCormac Co. wishes to maintain a growth rate 12 percent a year, a debt-equity ratio of 1.20, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 0.75. What profit margin must the firm achieve? #5: You’ve collected the following information about St. Pierre, Inc,: Sales = $195,000 Net income = $17,500 Dividends = $9,300 Total debt = $86,000 Total equity = $58,000 What is the sustainable growth rate for St. Pierre, Inc.? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? What growth rate could be supported with no outside financing at all? #6: U-Dunno Corporation's Balance Sheet and Income Statement are as shown below. Note that the firm maintains a cash balance as required for its operations (none of its cash is ‘excess cash’): U-Dunno Corporation 2012 and 2013 Balance Sheet Cash Accounts Receivable Inventory Total Net Fixed Assets Total Assets 2012 $260,000 180,000 250,000 $690,000 410,000 2013 $290,000 240,000 270,000 $800,000 450,000 $1,100,000 $1,250,000 Accounts Payable Notes Payable Total Long-Term Debt Common Stock Retained Earnings Total Liab & Equity 2012 $110,000 120,000 $230,000 290,000 250,000 330,000 $1,100,000 2013 $130,000 140,000 $270,000 328,000 250,000 402,000 $1,250,000 U-Dunno Corporation 2013 Income Statement Sales Cost of Goods Sold Depreciation Expense Earnings before Interest and Tax Interest Expense Taxable Income Less: Taxes (40%) Net Income $1,600,000 1,100,000 200,000 $300,000 60,000 $240,000 96,000 $144,000 a. Assume that all assumptions for application of the AFN Equation hold (as discussed in your course notes, i.e. the firm is operating at full capacity, it maintains the same operating relationships, payout ratios, etc.). What is U-Dunno Corporation’s AFN given a desired increase in Sales to $1,800,000 for 2014? b. If Fixed Assets had only been operating at 80% of capacity in 2013, would additional Fixed Assets still be required given desired sales of $1,800,000 for 2014? If not, what would be the resultant AFN required as per the AFN Equation (as covered in your notes)? c. Given that Fixed Assets had only been operating at 80% of capacity in 2013, if desired Sales increased to $2,200,000 for 2014 instead, what would be the increase in Fixed Asset requirement? ...
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  • Winter '14
  • Balance Sheet, Generally Accepted Accounting Principles, dividend payout ratio, U-Dunno Corporation

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