HOMEWORK 2 ANSWER KEY (2)

HOMEWORK 2 ANSWER KEY (2) - ENG 111, Fall 2011 October 10,...

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ENG 111, Fall 2011 October 10, 2011 HOMEWORK 2 – ANSWER KEY 1. The Income Statement and Balance Sheet for Orangeyaglad Inc. for 2009 are given below: Orangeyaglad INC. 2009 Income Statement Sales $ 929,000 Costs 723,000 Other expenses 19,000 EBIT $ 187,00 Interest 14,000 Taxable income $ 173,000 Taxes 60,550 Net income $ 112,450 Dividends $33,735 Add. to Ret. Earnings $78,715 Orangeyaglad INC. 2009 Balance Sheet Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 25,300 Accounts payable $ 68,000 Accounts receivable 40,700 Notes payable 17,000 Inventory 86,900 Total $ 85,000 Total $ 152,900 Long-term debt 158,000 Fixed assets Net plant and Owners’ equity equipment $ 413,000 Common stock and paid-in surplus $
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140,000 Retained earnings 182,900 Total $ 322,900 Total liabilities and owners’ Total assets $ 565,900 equity $ 565,900 a) (1 point) Sales for 2010 are projected to grow by 20%. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 20% growth rate in sales? ANSWER: Assuming costs vary with sales and a 20 percent increase in sales, the pro forma income statement will look like this: Orangeyaglad 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:
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Dividends = $41,028 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: Orangeyaglad INC. Pro Forma Balance Sheet Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $30,360 Accounts payable $ 81,600 Accounts receivable 48,840 Notes payable 17,000 Inventory 104,280 Total $ 98,600 Total $ 183,480 Long-term debt 158,000 Fixed assets Net plant and
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HOMEWORK 2 ANSWER KEY (2) - ENG 111, Fall 2011 October 10,...

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