Ross5eChap03sm

Ross5eChap03sm - Chapter 3 Financial Planning and Growth 3.2 a First we need to calculate the current sales and change in sales The current sales

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to End–of–Chapter Problems B– 14 Chapter 3: Financial Planning and Growth 3.2 a. First, we need to calculate the current sales and change in sales. The current sales are next year’s sales divided by one plus the growth rate, so: Current sales = Next year’s sales / (1 + g ) Current sales = $440,000,000 / (1 + .10) Current sales = $400,000,000 And the change in sales is: Change in sales = $440,000,000 – 400,000,000 Change in sales = $40,000,000 We can now complete the current balance sheet. The current assets, fixed assets, and short– term debt are calculated as a percentage of current sales. The long–term debt and par value of stock are given. The plug variable is the additions to retained earnings. So: Assets Liabilities Current Assets $80,000,000 Short–term debt $60,000,000 Long–term debt 145,000,000 Fixed Assets 560,000,000 Common stock 50,000,000 Retained earnings 385,000,000 Total equity $435,000,000 Total Assets $640,000,000 Total liabilities and equity $640,000,000 b. We can use the equation from the text to answer this question. The assets/sales and debt/sales are the percentages given in the problem, so: ( )( ) Assets Debt EFN Sales Sales ProfitMargin Sales 1- DvdPayout Sales Sales ! " ! " = # $ # $ % % ( ( EFN = (.20 + 1.40) × $40,000,000 – (.15 × $40,000,000) – [(.12 × $440,000,000) × (1 – .40)] EFN = $26,320,000 c. The current assets, fixed assets, and short–term debt will all increase at the same percentage as sales. The long–term debt and common stock will remain constant. The accumulated retained earnings will increase by the addition to retained earnings for the year. We can calculate the addition to retained earnings for the year as: Net income = Profit margin × Sales Net income = .12 x $440,000,000 Net income = $52,800,000
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Answers to End–of–Chapter Problems B– 15 The addition to retained earnings for the year will be the net income times one minus the dividend payout ratio, which is: Addition to retained earnings = Net income(1 – d) Addition to retained earnings = $52,800,000(1 – .40) Addition to retained earnings = $31,680,000 So, the new accumulated retained earnings will be: Accumulated retained earnings = $435,000,000 + 31,680,000
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/11/2011 for the course ACTSC 371 taught by Professor Wood during the Spring '08 term at Waterloo.

Page1 / 6

Ross5eChap03sm - Chapter 3 Financial Planning and Growth 3.2 a First we need to calculate the current sales and change in sales The current sales

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online