Financial Calculation

Question 1- The following is the financial statement of Executive Fruit Company for the year ended December 2014.

 

 

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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 $