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.)

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