Balance Sheet December 31, 2012 Cash 180,000 Accounts Payable 360,000 Accounts Receivable 360,000… 1 answer below »
Balance Sheet December 31, 2012
Cash
180,000
Accounts Payable
360,000
Accounts Receivable
360,000
Notes Payable
56,000
Inventories
720,000
Accruals
180,000
Total Current Assets
1,260,000
Total Current Liabilities
596,000
Fixed Assets
1,440,000
Long-term Debt
100,000
Common Stock
1,800,000
Retained Earnings
204,000
Total Assets
2,700,000
Total Liabilities & Equity
2,700,000
Income Statement December 31, 23012
Pers share data:
Sales
3,600,000
Common stock price
$ 45.00
Operating Costs
3,279,720
Earnings per share (EPS)
$ 1.08
EBIT
320,280
Dividends per share (DPS)
$ 1.08
Interest
20,280
Profit Before Tax
300,000
Tax @ 40%
120,000
Net Profit After Tax
180,000
Suppose that in 2013, sales increase by 10% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2012 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, they think they can reduce the operating costs/sales ratio to 87.5%, and increase the debt/assets ratio to 30%. They will raise 30% of 2013 forecasted total debt as notes payable and the rest as long-term debt. The before-tax cost of all debt is 12.5%. Assume that common stock issuances or repurchases can be made at the current stock price of $45.
A. Construct the forecasted financial statements assuming that these changes are made. What are the forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? (Use the Statements and Notes tabs)
B. If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional funds needed be zero? (Hint: Set AFN equal to zero and solve for the growth rate.)
