. Garrett Technology 2015 Financial Statements are below: Balance Sheet, Year en
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Question
. Garrett Technology 2015 Financial Statements are below:
Balance Sheet, Year ended Sept. 31, 2015
Cash $180,000 Account payable $ 360,000
Receivables 360,000 Notes payable 156,000
Inventories 720,000 Accruals 180,000
Total curr. assets 1,260,000 Total curr. liabilities 696,000
Fixed assets 1,440,000 Common stock 1,800,000
Retained earning 204,000
Total assets $2,700,000 Total liab./equity $2,700,000
Construct a 2015 income statement with sales of $3,600,000. COGS is 40% of sales, operating expenses are $1,080,000, interest expense is $18,280. Taxes 40%. Dividend payout 80%.
Now construct a 2016 proforma income statement and balance sheet using the percent of sales method with a 10% sales increase. Operating expenses are expected to increase by 3%. 80% of net income is still paid out as dividends. Interest expense is expected to stay the same. Remember-notes payable does not change until after the calculation for external funds. They are presently at 85% of fixed asset capacity.
a. 2016 sales
b. 2016 EBT
c. 2016 EAT
d. 2016 exp. dividend payout
e. 2016 exp. retained earnings
f. proforma current assets
g. proforma total assets
k. external fund requirement yes or no
l. What can sales increase to (state in $) until fixed assets need to increase?
Explanation / Answer
Income Statement 2015 Formula Sales 3600000 COGS 1440000 40% of sales Operating Expenses 1080000 EBIT 1080000 Sales - COGS - Op Expenses Interest Expenses 18280 EBT 1061720 EBIT - Interest Tax 424688 40% of EBT Net Profit 637032 EBT - Tax Dividend Payment 509626 80% of Net Profit Retained Earnings 127406 Net Profit - Dividend Proforma Income Statement 2016 Sales 3960000 2015 sales + 10% COGS 1584000 40% of sales Operating Expenses 1189520 EBIT 1186480 Interest 18280 EBT 1168200 Netprofit/(1-tax) Tax 467280 40% of EBT Net Profit 700920 17.7% of sales Dividend Payment 560736 80% of Net Profit Retained Earnings 140184 Balance Sheet 2015 2016 Assets Cash 180000 180000 Receivables 360000 360000 Inventories 720000 720000 Total Current Assets 1260000 1260000 Fixed Assets 1440000 1710000 Fixed assets 2015 + increase as per EFN requirement Total Assets 2700000 2970000 Liabilities Accounts Payable 360000 396000 =( % in 2015 of current assets - notes) * (current assets - notes + additional requirement) Notes Payable 156000 231816 Notes payable in 2015+Addl Funds requirment Accruals 180000 198000 current assets - notes payable + additional requiement - AP in 2016 Total Current Liabilities 696000 825816 Common Stock 1800000 1800000 Retained Earnings 204000 344184 RE in 2015 + RE from proforma income statement Total Equity 2004000 2144184 Total Liabilities and Equity 2700000 2970000 Profit Margin for 2015 =Net Profit/Sales *100 17.70 Sales growth rate 10 External Funds requirement = A(0) * sales growth - L0 * sales growth - S1*pm*b Where A0, L0, S0 are Assets, Liabilities and Sales in year 0, S1 sales in year 1, pm is profit margin and b is the retention ratio A(0) = 2700000, L(0) = 696000-156000=540000, S0 =3600000, S1 = 3960000, pm= 17.70%, b = 20% External Fund requirement = 2700000*[(3960000-3600000)/3600000] - 540000 *[(3960000-3600000)/3600000] * 3960000 * 17.7% * 0.20% Increase in Assets = =2700000 *10% 270000 Increase in Spotaneous Liabilities =540000*10% 54000 Increase in retained earnings = 3960000*17.7% * 0.20 140184 External Fund requirement = Inc in Assets - Inc in Spontaneous Liabilities - Increase in retained earnings External Fund Requirement 75816 This amount increases in notes payable which will be 307632 Based on the above there is external funds requirement to the tuneof 75816 Given that the capacity utilization level of fixed assets is 85% Sales in 2015 3600000 Maximum Sales which can be achieved at 100% utilization =3600000/85% 4235294 Additional Sales which can be achieved without additional Fixed Assets = 4235294 - 3600000 = 635294
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