Corporate_Finance_9th_edition_Solutions_Manual_FINAL0

18 2360 854 times 17 the only ratio given which

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Unformatted text preview: = $5,479.49 And finally, we are ready to solve the balance sheet identity as: NFA = TA – CA = $5,479.49 – 1,170 = $4,309.49 31 16. This problem requires you to work backward through the income statement. First, recognize that Net income = (1 – tC)EBT. Plugging in the numbers given and solving for EBT, we get: EBT = $9,450 / 0.66 = $14,318.18 Now, we can add interest to EBT to get EBIT as follows: EBIT = EBT + Interest paid = $14,318.18 + 2,360 = $16,678.18 To get EBITD (earnings before interest, taxes, and depreciation), the numerator in the cash coverage ratio, add depreciation to EBIT: EBITD = EBIT + Depreciation = $16,678.18 + 3,480 = $20,158.18 Now, simply plug the numbers into the cash coverage ratio and calculate: Cash coverage ratio = EBITD / Interest = $20,158.18 / $2,360 = 8.54 times 17. The only ratio given which includes cost of goods sold is the inventory turnover ratio, so it is the last ratio used. Since current liabilities are given, we start with the current ratio: Current ratio = 2.3 = CA / CL = CA / $270,000 CA = $621,000 Using the quick ratio, we solve for inventory: Quick ratio = 1.1 = (CA – Inventory) / CL = ($621,000 – Inventory) / $270,000 Inventory = CA – (Quick ratio × CL) Inventory = $621,000 – (1.1 × $270,000) Inventory = $324,000 Inventory turnover = 4.2 = COGS / Inventory = COGS / $324,000 COGS = $1,360,800 32 18. Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets Liabilities and Owners’ Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity 2009 Common size 2010 Common size Common base year $8,436 21,530 38,760 $68,726 226,706 $295,432 2.86% 7.29% 13.12% 23.26% 76.74% 100% $10,157 23,406 42,650 $76,213 248,306 $324,519 3.13% 7.21% 13.14% 23.48% 76.52% 100% 1.2040 1.0871 1.1004 1.1089 1.0953 1.0985 $43,050 18,384 $61,434 25,000 14.57% 6.22% 20.79% 8.46% $46,821 17,382 $64,203 32,000 14.43% 5.36% 19.78% 9.86% 1.0876 0.9455 1.0451 1.2800 $40,000 168,998 $208,998 $295,432 13.54% 57.20% 70.74% 100% $40,000 188,316 $228,316 $324,519 12.33% 58.03% 70.36% 100% 1.0000 1.1143 1.0924 1.0985 The common-size balance sheet answers are found by dividing each category by total assets. For example, the cash percentage for 2009 is: $8,436 / $295,432 = .0286 or 2.86% This means that cash is 2.86% of total assets. The common-base year answers for Question 18 are found by dividing each category value for 2010 by the same category value for 2009. For example, the cash common-base year number is found by: $10,157 / $8,436 = 1.2040 This means the cash balance in 2010 is 1.2040 times as large as the cash balance in 2009. 33 19. To determine full capacity sales, we divide the current sales by the capacity the company is currently using, so: Full capacity sales = $630,000 / .85 Full capacity sales = $741,176 So, the dollar growth rate in sales is: Sales growth = $741,176 – 630,000 Sales growth = $111,176 20. To find the new level of fixed assets, we need to find the current percentage of fixed assets to full capacity sales. Doing so, we find: Fixed assets / Full capacity sales = $580,000 / $741,176 Fixed assets / Full capacity sales = .7825 Next, we calculate the total dollar amount of fixed assets needed at the new sales figure. Total fixed assets = .7825($790,000) Total fixed assets = $618,206.35 The new fixed assets necessary is the total fixed assets at the new sales figure minus the current level of fixed assets. New fixed assets = $618,206.35 – 580,000 New fixed assets = $38,206.35 21. Assuming costs vary with sales and a 20 percent increase in sales, the pro forma income statement will look like this: MOOSE TOURS INC. Pro Forma Income Statement Sales $ 1,114,800 Costs 867,600 Other expenses 22,800 EBIT $ 224,400 Interest 14,000 Taxable income $ 210,400 Taxes(35%) 73,640 Net income $ 136,760 The payout ratio is constant, so the dividends paid this year is the payout ratio from last year times net income, or: Dividends = ($33,735/$112,450)($136,760) Dividends = $41,028 34 And the addition to retained earnings will be: Addition to retained earnings = $136,760 – 41,028 Addition to retained earnings = $95,732 The new retained earnings on the pro forma balance sheet will be: New retained earnings = $182,900 + 95,732 New retained earnings = $278,632 The pro forma balance sheet will look like this: MOOSE TOURS INC. Pro Forma Balance Sheet Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment $ $ 30,360 48,840 104,280 183,480 495,600 Liabilities and Owners’ Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners’ equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners’ equity $ $ 81,600 17,000 98,600 158,000 $ $ $ 140,000 278,632 418,632 675,232 Total assets So the EFN is: $ 679,080 EFN = Total assets – Total liabilities and equity EFN = $679,080 – 675...
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This note was uploaded on 07/10/2010 for the course FIN 6301 taught by Professor Eshmalwi during the Spring '10 term at University of Texas-Tyler.

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