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eng111_HW2_solution - ENG 111 HW2 Winter 2009 Note 1 Put...

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ENG 111 HW2 Winter 2009 Note: 1. Put your name, id number, section number on top of your solutions. 2. Submit your solution in electronic format in .pdf or .doc. 3. You may not scan the handwritten solutions; all submissions must be typed. 4. Plagiarism is strictly prohibited. 5. Due at 11:59 pm, 01/24/2009. No Late Submissions Q1. Sustainable Growth. If the Layla Corp. has a 15 percent ROE and a 20% payout ratio, what is its sustainable growth rate? ANS: b=1-0.2=0.8 Sustainable growth rate=(ROE*b)/[1-ROE*b]=13.64% Q2. Calculating EFN. Given the most recent financial statements for Bradley, Inc. Assume assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be 5,500. (1) Construct its pro forma balance sheet and income statement. (2) What is the external financing needed? ----------- Income Statement: Sales 4,400 Costs 2,685 Net income 1,715 ----------- Balance sheet Assets 13,400 Total Asset 13,400 - Debt 9,100 Equity 4,300 Total Debt and Equity 13,400 ------------ ANS: Sale increase from 4,400 to 5,500, which is 25% of increase. The Pro forma financial statements
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----------- Income Statement: Sales 5,500 Costs 3,356 Net income 2,144 ----------- Balance sheet Assets 16,750 Total Asset 16,750 - Debt 9,100 Equity 6,444 Total Debt and Equity 15,544 ------------ Note: Pro Forma equity=4300+2144=6444.
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