#1: Moonshine Inc. has a positive retention ratio. If sales grew by 10 percent, the firm...
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#1: Moonshine Inc. has a positive retention ratio. If sales grew by 10 percent, the firm would have a negative projected EFN. a) What does this tell you about the firm's Internal Growth Rate (IGR)? b) From your answer to part a, what can you say about the firm's Sustainable Growth Rate (SGR)? c) At this same level of growth, what will happen to the projected EFN if the retention ratio is increased? d) At this same level of growth, what will happen to the projected EFN if the firm pays out all its earnings in the form of dividends? #2: You have the following income statement for 2021 (in millions of dollars) of Jet Inc.: Income Statement 2021 (in $ millions) Sales $560 Operating Costs 364 EBIT $196 Interest 36 Taxable Income $160 Taxes (40%) 64 Net Income $96 The company forecasts that its sales will increase by 14% in 2022 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $36 million, and the tax rate will remain at 40%. The company plans to pay out 60% of its net income as dividends with the remaining to be added to retained earnings. What is the forecasted addition to retained earnings for 2022? Round your answer to the nearest $ million. #3: You have the most recent financial statements for Heckles & Co. Balance Sheet Current Assets $25,738 Fixed Assets 42,182 Current Liabilities Long-term Debt $13,075 9,090 Equity 45,755 Total Assets $67,920 Total Liabs & OE $67,920 Income Statement Sales $84,406 Costs 63,306 Taxable Income $21,100 Taxes (40%) 8,440 Net Income $12,660 Assets, Costs, and Current Liabilities are proportional to sales. Long-term Debt and Equity are not. The company maintains a constant 25 percent dividend payout ratio. Next year's sales are projected to increase by 22 percent. What is the External Financing Needed (EFN)? #4: You are presented with the most recent financial statements for Esshell Company: Balance Sheet Current Assets Fixed Assets $82,500 Current Liabilities 87,500 Long-term Debt $25,800 23,200 Equity 121,000 Total Assets $170,000 Total Liabs & OE $170,000 Income Statement Sales $127,300 Costs 78,900 Taxable Income $48,400 Taxes (30%) 14,520 Net Income $33,880 23,716 Dividends Add'n to RE 10,164 Assets and Costs are proportional to sales. The company maintains a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued? #1: Moonshine Inc. has a positive retention ratio. If sales grew by 10 percent, the firm would have a negative projected EFN. a) What does this tell you about the firm's Internal Growth Rate (IGR)? b) From your answer to part a, what can you say about the firm's Sustainable Growth Rate (SGR)? c) At this same level of growth, what will happen to the projected EFN if the retention ratio is increased? d) At this same level of growth, what will happen to the projected EFN if the firm pays out all its earnings in the form of dividends? #2: You have the following income statement for 2021 (in millions of dollars) of Jet Inc.: Income Statement 2021 (in $ millions) Sales $560 Operating Costs 364 EBIT $196 Interest 36 Taxable Income $160 Taxes (40%) 64 Net Income $96 The company forecasts that its sales will increase by 14% in 2022 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $36 million, and the tax rate will remain at 40%. The company plans to pay out 60% of its net income as dividends with the remaining to be added to retained earnings. What is the forecasted addition to retained earnings for 2022? Round your answer to the nearest $ million. #3: You have the most recent financial statements for Heckles & Co. Balance Sheet Current Assets $25,738 Fixed Assets 42,182 Current Liabilities Long-term Debt $13,075 9,090 Equity 45,755 Total Assets $67,920 Total Liabs & OE $67,920 Income Statement Sales $84,406 Costs 63,306 Taxable Income $21,100 Taxes (40%) 8,440 Net Income $12,660 Assets, Costs, and Current Liabilities are proportional to sales. Long-term Debt and Equity are not. The company maintains a constant 25 percent dividend payout ratio. Next year's sales are projected to increase by 22 percent. What is the External Financing Needed (EFN)? #4: You are presented with the most recent financial statements for Esshell Company: Balance Sheet Current Assets Fixed Assets $82,500 Current Liabilities 87,500 Long-term Debt $25,800 23,200 Equity 121,000 Total Assets $170,000 Total Liabs & OE $170,000 Income Statement Sales $127,300 Costs 78,900 Taxable Income $48,400 Taxes (30%) 14,520 Net Income $33,880 23,716 Dividends Add'n to RE 10,164 Assets and Costs are proportional to sales. The company maintains a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued?
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Answer rating: 100% (QA)
SOLUTION 1 a The positive retention ratio indicates that the firm has a positive internal growth rate IGR which means that the firm is generating earn... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
Posted Date:
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