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CHAPTER 4-1

# CHAPTER 4-1 - The payout ratio is constant so the dividends...

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Sales increase = (\$7,424 – 6,300) / \$6,300 Sales increase = .18 or 18% Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Pro forma balance sheet Sales \$ 7,434 Assets \$ 21,594 Debt \$ 12,400 Costs 4,590 Equity 8,744 Net income \$ 2,844 Total \$ 21,594 Total \$ 21,144 If no dividends are paid, the equity account will increase by the net income, so: Equity = \$5,900 + 2,844 Equity = \$8,744 So the EFN is: EFN = Total assets – Total liabilities and equity EFN = \$21,594 – 21,144 = \$450 4. An increase of sales to \$21,840 is an increase of: Sales increase = (\$21,840 – 19,500) / \$19,500 Sales increase = .12 or 12% Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Pro forma balance sheet Sales \$ 21,840 Assets \$109,760 Debt \$52,500 Costs 16,800 Equity 79,208 EBIT 5,040 Total \$109,760 Total \$99,456 Taxes (40%) 2,016 Net income \$ 3,024
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Unformatted text preview: The payout ratio is constant, so the dividends paid this year is the payout ratio from last year times net income, or: Dividends = (\$1,400 / \$2,700)(\$3,024) Dividends = \$1,568 The addition to retained earnings is: Addition to retained earnings = \$3,024 – 1,568 Addition to retained earnings = \$1,456 And the new equity balance is: Equity = \$45,500 + 1,456 Equity = \$46,956 So the EFN is: EFN = Total assets – Total liabilities and equity EFN = \$109,760 – 99,456 EFN = \$10,304 5. Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Pro forma balance sheet Sales \$4,830.00 CA \$4,140.00 CL \$2,145.00 Costs 3,795.00 FA 9,085.00 LTD 3,650.00 Taxable income \$1,035.00 Equity 6,159.86 Taxes (34%) 351.90 TA \$13,225.00 Total D&E \$12,224.86 Net income \$ 683.10 The payout ratio is 40 percent, so dividends will be: Dividends = 0.40(\$683.10) Dividends = \$273.24...
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