Financial Calculation
Question 1- The following is the financial statement of Executive Fruit Company for the year ended December 2014. |
Don't use plagiarized sources. Get Your Custom Essay on
Need an answer from similar question? You have just landed to the most confidential, trustful essay writing service to order the paper from.
Just from $11/Page
INCOME STATEMENT, 2014 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 3,500 | |
Cost of goods sold | 3,150 | ||
|
|
||
EBIT | $ | 350 | |
Interest | 70 | ||
|
|
||
Earnings before taxes | $ | 280 | |
State and federal tax | 112 | ||
|
|
||
Net income | $ | 168 | |
Dividends | 112 | ||
|
|
||
Additions to retained earnings | $ | 56 | |
|
|
||
|
BALANCE SHEET (Year-End, 2014) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 350 | |
Fixed assets | 1,400 | ||
|
|
||
Total assets | $ | 1,750 | |
|
|
||
Liabilities and shareholders’ equity | |||
Long-term debt | $ | 700 | |
Shareholders’ equity | 1,050 | ||
|
|
||
Total liabilities and shareholders’ equity | $ | 1,750 | |
|
|
||
|
The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015. |
First stage pro forma statements: |
PRO FORMA INCOME STATEMENT, 2015 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 3,850 | |
Cost of goods sold | 3,465 | ||
|
|
||
EBIT | $ | 385 | |
Interest | 70 | ||
|
|
||
Earnings before taxes | $ | 315 | |
State and federal tax | 126 | ||
|
|
||
Net income | $ | 189 | |
Dividends | 126 | ||
|
|
||
Additions to retained earnings | $ | 63 | |
|
|
||
|
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 385 | |
Fixed assets | 1,540 | ||
|
|
||
Total assets | $ | 1,925 | |
|
|
||
Liabilities and shareholders’ equity | |||
Long-term debt | $ | 700 | |
Shareholders’ equity | 1,113 | ||
|
|
||
Total liabilities and shareholders’ equity | $ | 1,813 | |
|
|
||
Required external financing | $ | 112 | |
|
|
||
|
Second stage pro forma balance sheet: |
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 385 | |
Fixed assets | 1,540 | ||
|
|
||
Total assets | $ | 1,925 | |
|
|
||
Liabilities and shareholders’ equity | |||
Long-term debt | $ | 812 | |
Shareholders’ equity | 1,113 | ||
|
|
||
Total liabilities and shareholders’ equity | $ | 1,925 | |
|
|
||
|
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 $ [removed]. Therefore, the requirement for external financing falls from $ [removed]to $ [removed]. On the other hand, shareholders’ equity will be increased by $ [removed]. |
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): |
Long-term debt | $ |
Shareholders’ equity | |
|
|
Total | $ |