The balance sheet and income statement shown below are for Pettijohn Inc. Note t
ID: 2630716 • Letter: T
Question
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Tax rate
40%
Stock price
$17.00
Shares outstanding
3,800,000
Dividends are 50% of net income
Income Statement
Period Ending
31-Dec-13
Total Revenue
148,239,000
COGS
118,094,000
Selling General and Administrative
13,384,000
Depreciation
72,000
Earnings Before Interest And Taxes
16,689,000
Interest Expense
829,000
Income Before Tax
15,860,000
Income Tax Expense (40%)
6,344,000
Net Income
9,516,000
Balance Sheet
Date
31-Dec-13
Assets
Current Assets
Cash
14,468,000
Net Receivables
98,359,000
Inventory
18,758,000
Total Current Assets
131,585,000
Property Plant and Equipment
70,441,000
Total Assets
202,026,000
Liabilities
Current Liabilities
Accounts Payable
22,446,500
Accruals
14,315,500
Notes Payable
3,631,000
Total Current Liabilities
40,393,000
Long Term Debt
134,919,000
Total Liabilities
175,312,000
Stockholders' Equity
Common Stock
40,000
Retained Earnings
26,674,000
Total Stockholder Equity
26,714,000
Total Assets
202,026,000
Question/Problem
Calculate the additional or external funds needed if the firm is expecting a growth rate of 10% next year. The firm is currently operating at 95% of capacity and the fixed assets can only by $10,000,000 increments.
can you show the work?
Tax rate
40%
Stock price
$17.00
Shares outstanding
3,800,000
Dividends are 50% of net income
Explanation / Answer
SOLUTION:
AFN = Total asset*% sales increase - Current liability * % sales increase - (New sales*profit % * retention ratio)
INPUT DATA
FA
704,41,000
CA
1315,85,000
CL
403,93,000
Sales
1482,39,000
Profit %
6.42%
Retention ratio
50.0%
Growth rate
10.0%
Working
Output
Increase in FA
(+FA*1.1-FA/0.95)
33,36,679
Rounded to
Multiple of 10 million
100,00,000
Increase in CA
CA*10%
131,58,500
Increase in CL
CL*10%
40,39,300
Increase in RE
Sales*(1+growth)*margin%*Retention ratio
52,33,800
External fund required
FA increase+CA increase-CL increase-RE increase
138,85,400
INPUT DATA
FA
704,41,000
CA
1315,85,000
CL
403,93,000
Sales
1482,39,000
Profit %
6.42%
Retention ratio
50.0%
Growth rate
10.0%
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