yEx03 for Chapter Four (Part 3) 6 Consider the following income statement for th

Question

yEx03 for Chapter Four (Part 3) 6 Consider the following income statement for the Heir Jordan Corporation: JORDAN CORPORATI Income Statement $42,900 33,900 Sales Costs Taxable income Taxes (21%) $ 9,000 1,890 Net income S 7110 Addition to retained earnings $2.400 4710 The projected sales growth rate is 17 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant (Imput all answers os positive values. Do not round intermediate calculations HEIR JORDAN CORPORATION Forma Income Statement 1 of 4 E Next > TOSHIBA 4 5 6 8 9 0

Explanation / Answer

QUESTION 1: HIER JORDAN CORPORATION

The pro-forma income statement is as follows:

The addtion to retained earnings is calculated as follows:

QUESTION 2:Kaleb's heavy equipment

Net Income = 70,000

Dividends = 15,200

Retained earnings = 70,000 - 15,200 = 54,800

Plowback ratio = 54,800/70,000

ROE = Profit margin * 1/ Capital intensity * (1+Debt-to-equity)

ROE = 0.061*1/0.7*(1+0.8)

ROE = 0.1568

Sustainable growth rate (g) = ROE * plowback = 0.1568*54800/70000 = 0.1228

Sustainable growth rate (g) = 12.28%

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Sales 50193 Costs 39663 Taxable income 10530 Taxes at 21% 2211 Net Income 8319

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