are shown here assuming no income taxes income

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Unformatted text preview: Equity multiplier Payout ratio 1.60 6.9% 1.30 40% 8. Calculating EFN The most recent financial statements for Incredible Edibles, Inc., are shown here (assuming no income taxes): INCOME STATEMENT Sales Costs Net income $5,300 3,840 $1,460 Assets Total BALANCE SHEET $15,800 $15,800 Debt Equity Total $ 2,700 13,100 $15,800 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $6,360. What is the external financing needed? 9. External Funds Needed Cheryl Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 15 percent to $368 million. Current assets, fixed assets, and short-term debt are 20 percent, 90 percent, and 15 percent of sales, respectively. Charming Florist pays out 40 percent of its net income in dividends. The company currently has $35 million of long-term debt, and $60 million in common stock par value. The profit margin is 10 percent. a. Construct the current balance sheet for the firm using the projected sales figure. b. Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year? c. Construct the firm’s pro forma balance sheet for the next fiscal year and confirm the external funds needed you calculated in part (b). 82 PART 1 Overview ros82361_ch03.indd ros82361_ch03.indd 82 5/27/08 8:24:32 PM Confirming Pages 10. Sustainable Growth Rate The Steiben Company has an ROE of 12.20 percent and a payout ratio of 30 percent. a. What is the company’s sustainable growth rate? b. Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not? c. How can the company change its sustainable growth rate? 11. Return on Equity Firm A and Firm B have debt/total asset ratios of 70 percent and 60 percent and returns on total assets of 10 percent and 15 percent, respectively. Which firm has a greater return on equity? 12. Ratios and Foreign Companies Prince Albert Canning PLC had a net loss of £21,583 on sales of £147,318 (both in thousands of pounds). What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $298,157. What was the net loss in dollars? 13. External Funds Needed The Optical Scam Company has forecast an 18 percent sales growth rate for next year. The current financial statements are shown below. INCOME STATEMENT Sales Costs Taxable income Taxes Net income Dividends Additions to retained earnings $43,000,000 34,500,000 $ 8,500,000 2,975,000 $ 5,525,000 $1,657,500 $3,867,500 Intermediate (Questions 11–23) B A LA N C E S H E E T Assets Current assets Fixed assets $10,500,000 30,000,000 Common stock Accumulated retained earnings Total equity Total liabilities and equity $ 3,000,000 24,000,000 $27,000,000 $40,500,000 Short-term debt Long-term debt Liabilities...
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This note was uploaded on 10/28/2009 for the course FINA 505 taught by Professor Deborahcernauskas during the Summer '09 term at Northern Illinois University.

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