The following data shows a company's income statement and balance sheet accounts, assuming a 4 0 %
Question:
The following data shows a company's income statement and balance sheet accounts, assuming a tax rate.
Sales $
Retained earnings $
Other expenses $
Notes Payable $
Net PP&E $
Longterm debt $
Inventory $
Interest $
Dividends $
Depreciation $
Common stock $
COGS $
Cash $
Accounts Receivable $
Accounts Payable $
You are required to do the following tasks:
Calculate the internal growth rate and sustainable growth rate for the company. What do these numbers mean?
The company plans to grow by next year at full capacity. Calculate EFN and determine if sales can support growth.
Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a staircase or lumpy fixed cost structure. Assume company is currently producing at percent capacity. As a result, to increase production, the company must set up an entirely new line at a cost of $ Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?
Fundamentals of Corporate Finance
ISBN: 978-0133400694
1st canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford, David A. Stangeland, Andras Marosi