Hapter 4, Long-Term Financial Planning and Growth, Chapter 5, Introduction to Valuation: The Time Value of Money

1.
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):

Income Statement Balance Sheet
Sales $ 32,400 Assets $ 23,700 Debt $ 6,200
Costs 26,760 Equity 17,500
________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
Net income $ 5,640 Total $ 23,700 Total $ 23,700
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________

The company has predicted a sales increase of 9 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.

Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.)

Pro forma income statement Pro forma balance sheet
Sales $
Assets $
Debt $

Costs
Equity

________________________________________ ________________________________________ ________________________________________
Net income $
Total $
Total $

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________

What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)

External financing needed $

References
WorksheetLearning Objective: 04-01 How to apply the percentage of sales method.
Difficulty: BasicLearning Objective: 04-02 How to compute the external financing needed to fund a firms growth.

2.
The most recent financial statements for Hornick, Inc., are shown here (assuming no income taxes):

Income Statement Balance Sheet
Sales $ 8,200 Assets $ 24,600 Debt $ 12,000
Costs 5,860 Equity 12,600
________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
Net income $ 2,340 Total $ 24,600 Total $ 24,600
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next years sales are projected to be $9,102.

What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

External financing needed $

Hints
References
Hint #1

3.

The most recent financial statements for Schenkel Co. are shown here:

Income Statement Balance Sheet
Sales $ 16,500 Current assets $ 11,500 Debt $ 16,000
Costs 10,700 Fixed assets 27,750 Equity 23,250
________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
Taxable income $ 5,800 Total $ 39,250 Total $ 39,250
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
Taxes (40%) 2,320
________________________________________ ________________________________________
Net income $ 3,480
________________________________________________________________________________ ________________________________________________________________________________
________________________________________

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. No external equity financing is possible.

What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Sustainable growth rate %

Hints
References
Hint #1

4.

Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION
Income Statement

Sales $ 45,900
Costs 35,400
________________________________________ ________________________________________
Taxable income $ 10,500
Taxes (30%) 3,150
________________________________________ ________________________________________
Net income $ 7,350
________________________________________________________________________________ ________________________________________________________________________________
Dividends $ 2,500
Addition to retained earnings 4,850
________________________________________

The projected sales growth rate is 12 percent.

Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all amounts as positive values. Do not round intermediate calculations.)

HEIR JORDAN CORPORATION
Pro Forma Income Statement

Sales $

Costs

________________________________________
Taxable income $

Taxes

________________________________________
Net income $

________________________________________________________________________________
________________________________________

What is the projected addition to retained earnings? (Do not round intermediate calculations.)

Addition to retained earnings $

R

5.
Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION
Income Statement
Sales $ 45,000
Costs 35,000
________________________________________ ________________________________________
Taxable income $ 10,000
Taxes (35%) 3,500
________________________________________ ________________________________________
Net income $ 6,500
________________________________________________________________________________ ________________________________________________________________________________
Dividends $ 1,600
Addition to retained earnings 4,900
________________________________________

The balance sheet for the Heir Jordan Corporation follows.

HEIR JORDAN CORPORATION
Balance Sheet
Assets Liabilities and Owners Equity
Current