Finance Ch. 5 Solutions

# 14 a net income forecast 34500000 135000 dividend

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14) (a) Net income forecast = 3%(\$4,500,000) = \$ 135,000 Dividend forecast = 80%(\$135,000)= 108,000 = Add to retained earnings forecast 27,000 + Beginning retained earnings 6,000,000 = Forecast of end-of-year retained earnings \$6,027,000 (b) Net income forecast = 7%(\$4,500,000) = \$ 315,000 Dividend forecast = 25%(\$315,000)= 78,750 = Add to retained earnings forecast 236,25 + Beginning retained earnings 6,000,00 = Forecast of end-of-year retained earnings \$6,236,250 (c) \$6,000,000. (d) Net income forecast = 14%(\$4,500,000) = \$ 630,000 Dividend forecast = 40%(\$630,000) = 252,000 = Add to retained earnings forecast 378,000 + Beginning retained earnings 6,000,000 = Forecast of end-of-year retained earnings \$6,378,000 15) (1) Forecast sales : given as \$80,000. (2) (a) Variable : all of cost of goods sold and \$5,000 of operating expenses.

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(b) Fixed : all of depreciation expense and the remainder of \$3,000 of operating expenses. (c) Spontaneous : all of cash, accounts receivable, inventories, net plant, accounts payable, and accrued expenses. (d) Discretionary : marketable securities, bonds payable, and common stock. (3) Determine relationships (a) Variable costs Cost of goods sold: 45,000 = 64.29% 70,000 Operating expense: 5,000 = 7.14% 70,000 (b) Spontaneous accounts Cash: 8,000 = 11.43% 70,000 Accounts receivable: 10,000 = 14.29% 70,000 Inventories: 6,000 = 8.57% 70,000 Net plant: 20,000 = 28.57% 70,000 Accounts payable: 7,000 = 10.00% 70,000 Accrued payables: 3,000 = 4.29% 70,000 (c) Other Interest rate: 1,300 = 13.00% 10,000 Tax rate: 3,745 = 35.00% 10,700 Dividend payout ratio: 3,000 = 43.13% 6,955 (4) Project new values (a) Variable costs Cost of goods sold: 64.29%(\$80,000) = \$51,432 Variable operating expense: 7.14%(\$80,000) = \$5,712 Total operating expense = 5,712 + 3,000 = 8,712 (b) Spontaneous accounts Cash: 11.43%(\$80,000) = \$ 9,144 Accounts receivable: 14.29%(\$80,000) = 11,432 Inventories: 8.57%(\$80,000) = 6,856 Net plant: 28.57%(\$80,000) = 22,856 Accounts payable: 10.00%(\$80,000) = 8,000 Accrued payables: 4.29%(\$80,000) = 3,432 (c) Other
Interest expense: 13.00%(\$9,500) = \$1,235 (5) Sales \$80,000  CGS 51,432 Gross profit 28,568  Operating exp. \$8,712  Depreciation 5,000 13,712 EBIT 14,856  Interest exp. 1,235 EBT 13,621  Tax exp. 4,767 EAT \$ 8,854  Dividends 3,819 Add to RE \$ 5,035 Pro-Forma Balance Sheet 12/31/12 Cash \$ 9,144 projection Marketable securities 2,000 discretionary Accounts receivable 11,432 projection Inventories 6,856 projection Plant, net 22,856 projection TA \$52,288 A/P 8,000 projection Accrued payables 3,432 projection Bonds payable 9,500 projection CS 15,000 discretionary RE 16,035 From pro-forma income statement 51,967 External financing needed 321 Total L + E \$52,288 (6) Need external financing of \$321.

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┘(7) Pro-forma Cash-Flow Statement For the year ending December 31, 2012 CASH FLOWS FROM OPERATIONS Received from customers \$78,568 Paid to suppliers and employers (59,568) Interest paid
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14 a Net income forecast 34500000 135000 Dividend forecast...

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