For New England Corporation mentioned in Question 1 above:

(i)Estimate the EFN for 2021 using the "Direct Method".[10 POINTS]

(ii)The "direct method" EFN formula has three parts to it. Briefly explain what each part of the formula measures.[5 POINTS]

Question 3 (5 points)

Make an adjustment to your EFN estimate from Question 2 (Direct Method estimate) if New England Corporation was operating at 90% capacity in 2020.What is the adjusted EFN once the presence of excess capacity is accounted for?

New England Corporation

Income Statement ($ thousands)

2020

Sales

$95,023

Cost of goods sold

63,186

SG&A expense

8,241

Depreciation expense

6,106

EBIT

17,490

Interest expense

6,724

EBT

10,766

Taxes

5,092

Net income

5,674

Allocation of net income:

Dividends

$2,921

Addition to retained earnings

$2,753

NEW ENGLAND CORP BALANCE SHEET IS ON THE NEXT PAGE

Balance Sheet ($ thousands)

31-Dec-20

ASSETS

Current assets

Cash and marketable securities

$7,916

Accounts receivable

$22,854

Inventory

$30,991

Total current assets

$61,761

Net PPE

331,083

Total assets

$392,844

LIABILITIES AND EQUITY

Current liabilities

Accounts payable

$63,250

Short-term debt

$53,258

Total current liabilities

$116,508

Long-term debt

$58,757

Total liabilities

$175,265

Shareholders' equity

Common Stock & Paid-In Capital

$147,400

Retained earnings

$70,179

Total shareholders' equity

$217,579

Total liabilities and shareholders' equity

$392,844

Answer rating: 100% (QA)

i Estimate the EFN for 2021 using the Direct Method The EFN External Financing Needed can be calcula... View the full answer