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# Ch04sol - H4.1 Solution to Problem 4.3 4.3 EFN The most...

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H4.1. Solution to Problem 4.3 4.3. EFN: The most recent financial statements for Lima Produce are shown here (assuming no income taxes): Income Statement Sales PEN 19,200 Costs 15,550 Taxable Income PEN 3,650 Taxes (34%) 1,241 Net Income PEN 2,409 Balance Sheet Assets PEN 93,000 Debt PEN 20,400 Equity 72,600 Total PEN 93,000 Total PEN 93,000 Assets and costs are proportional to sales. Debt and equity are not. A dividend of PEN 963.60 was paid, and McGillicudy wishes to maintain a constant payout ratio. Next year’s sales are projected to be PEN 23,040. What is the external financing needed? An increase of sales to PEN 23,040 is an increase of: Sales increase = (PEN 23,040 – 19,200) / PEN 19,200 = .20 or 20%

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H4.2. Solution to Problem 4.3 Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Pro forma balance sheet Sales PEN 23,040.00 Assets PEN 111,600 Debt PEN 20,400.00 Costs 18,660.00 Equity 74,334.48 EBIT 4,380.00 Total PEN 111,600 Total PEN 94,734.48 Taxes(34%) 1,489.20 NI PEN 2,890.80 The payout ratio is constant, so the dividends paid this year is the payout ratio from last year times net income, or: Dividends = (PEN 963.60 / PEN 2,409)(PEN 2,890.80) = PEN 1,156.32 The addition to retained earnings is: Addition to retained earnings = PEN 2,890.80 – 1,156.32 = PEN 1,734.48 And the new equity balance is: Equity = PEN 72,600 + 1,734.48 = PEN 74,334.48 So the EFN is: EFN = Total assets – Total liabilities and equity = PEN 111,600 – 94,734.48 = PEN 16,865.52
H4.3. Solution to Problem 4.8 4.8. Sales and Growth: The most recent financial statements for Rio Fashion, a Brazilian-based designer, are shown here, in millions of reals: Income Statement Sales 154,000 Costs 131,320 Taxable Income 22,680 Tax (34%) 7,711 NI 14,969 Balance Sheet Current assets 75,400 Long-term Debt 168,200 Fixed assets 304,500 Equity 211,700 Total 379,900 Total 379,900 Assets and costs are proportional to sales. The company maintains a constant 30% dividend payout ratio and a constant

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Ch04sol - H4.1 Solution to Problem 4.3 4.3 EFN The most...

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