Carson Enterprises Incremental Algebraic Computation of EFN

Carson Enterprises Incremental Algebraic Computation of EFN...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: From Chapter 3 (page 86.10), we learned: RE = Net Profit - Cash Dividends (Preferred & Common) When using the Incremental Algebraic Approach, this equation expands to: Projected RE = St (1 + g) ( ) NI Div 1 t +1 t + 1 S NI t +1 t + 1 = (S t+1) (NPM) (1 Dividend Payout Ratio) = (S t+1) (NPM) (1 b) = (S t+1) (NPM) (Retention Ratio) Method 2: Incremental Algebraic Approach Projected Assets Projected Spontaneous liabilities Projected RE EFN = Therefore, EFN is equal to: A t S t SL S - t S t S - S (1 + g) t ( ) NI Div 1 t +1 t + 1 S NI t +1 t + 1 Total Financing provided Projected Net Profit Retention Financing by an increase in Sales Margin Ratio Needs1 Spontaneous Liabilities Financing provided by an increase in Retained Earnings A = Assets S (t) = Past Year's Sales S (t+1) = Projected Sales SL = Spontaneous Liabilities 1 This first term only includes assets that change in proportion to changes in sales. If there are other assets that do not increase proportionately with sales, for example fixed assets, you must add them here. g = Growth Rate NI (t+1) = Projected Net Income Div (t+1) = Projected Dividends ...
View Full Document

This note was uploaded on 08/22/2009 for the course FIN 3310 taught by Professor Potts during the Spring '08 term at Baylor.

Ask a homework question - tutors are online