The following are the first stage and second stage pro forma financial statement

Question

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):

The following is the financial statement of Executive Fruit Company for the year ended December 2014.

Explanation / Answer

Working Notes

NEt Incoem => 216 - 33.34%(Didividens) => 144( addition to reatained earnings, so dividend decreased from 144 to 72 ie by $ 72

and sharholder will increase to 1200 +144 => 1344 and long term debt = 800 so total 2144 therefore external fund => 2200 - 2144 => $56

which will be added to long term debt

FAIR WORK

Dividends fall by $ 72 . Therefore, the requirement for external financing falls from $ 128 to $56 . On the other hand, shareholders' equity will be increased by $ 144.

Right hand side balance sheet.

Liabilities Amount ($) Long-term debt 856 Shareholders' equity 1344 TOTAL 2200

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