3. 200 points 2.00 points Consider the following income statement for the Heir J

Question

3. 200 points 2.00 points Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales Costs $43,200 34,000 Taxable income Taxes (35%) $ 9,200 3,220 Net income $ 5,980 Dividends $ 2,700 Addition to retained earnings 3,280 The projected sales growth rate is 15 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant HEIR JORDAN CORPORATION Pro Forma Income Statement Sales Costs 6480 5100 Taxable income Taxes Net income at is the projected addition to retained earnings? Retained eamings references ebook & resources Wh

Explanation / Answer

Heir Jordan Corporation

Dividend payout ratio = Dividend /net income

Dividend payout ratio = 2700/5980 = 0.45

Dividend= 897x0.45=$403.65

Additions to retaind Earnings = 897-403.65

=$493.35

Increase in retained Earnings

Profit margin is 5% of sales

sales = 2800

Profit = 2800*5% = $140

Dividend payout ratio - 40%

Dividend payout ratio = dividend /net income

40% = dividend/140 = $56

Increase in retained earnings = 140-56

$84

Internal Growth rate

ROA = 8% and PAyout ratio - 31%

Internal Growth rate = ROAxretention ratio/(1-ROAxRetention ratio)

Retention ratio = (1-payout ratio)

= (1-0.31)=0.69

Internal Growth rate = ROAxretention ratio/(1-ROAxRetention ratio)

=0.8x0.69/(1-0.8x0.69)

=0.552/(1-0.552)

=0.058425 or 5.84%

Particulars Amount($) sales 6480 Cost 5100 Taxable income(6480-5100) 1380 Less income tax(35%) 483 Net income(1380-483) $897

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