question archive The most recent financial statements for Marvellous Corporation follow
The most recent financial statements for Marvellous Corporation follow
Subject:FinancePrice:2.86 Bought18
The most recent financial statements for Marvellous Corporation follow. Sales for 2021 are projected to increase by 15 percent. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant dividend pay-out ratio. The firm is operating at full capacity and no new debt or equity is issued.
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2020 Income Statement |
Balance Sheet as at 31 December 2020 |
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Sales Net income Dividends |
€15,800 11,000 €4,800 1,200 €3,600 €1,440 |
Current assets Fixed assets Total assets |
€7,800 17,200 €25,000 |
Current liabilities Long-term debt Equity Total liabilities & equity |
€4,200 7,400 13,400 €25,000 |
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Instructions:
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a) Calculate internal and sustainable growth rates, and explain what they mean. (10 points)
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b) Prepare Proforma Income Statement for 2021, calculate dividends and addition to retained earnings in 2021. (10 points)
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c) Prepare Proforma Balance Sheet for 2021. (10 points)
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d) Calculate the amount of external financing needed in 2021, and explain what financing options are available for the company. (5 points)
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| a] | ||
| i] | Internal growth rate [IGR} is given by: | |
| IGR = ROTA*b/(1-ROTA*b), where | ||
| ROTA = Return on total assets and b = retention ratio. | ||
| ROTA = 1440/25000 = 5.76% | ||
| b = 1-Dividend payout ratio = 1-1440/3600 = 60% | ||
| IGR = 0.0576*0.6/(1-0.0576*0.6) = 3.58% | ||
| ii] | SGR = ROE*b/(1-ROE*b) | |
| ROE = NI/Equity = 1440/13400 = 10.75% | ||
| SGR = 0.1075*0.6/(1-0.1075*0.6) = 6.89% | ||
| b] | PROFORMA INCOME STATEMENT | |
| Sales [15800*115%] | € 18,170 | |
| -Costs [11000*115%] | € 12,650 | |
| =Taxable income | € 5,520 | |
| -Taxes at 25% | € 1,380 | |
| =Net income | € 4,140 | |
| -Dividends [40%] | € 1,656 | |
| =Addition to RE | € 2,484 | |
| c] | PROFORMA BALANCE SHEET | |
| Assets | ||
| Current assets [7800*115%] | € 8,970 | |
| Fixed assets [17200*115%] | € 19,780 | |
| Total assets | € 28,750 | |
| Total liabilities and Equity | ||
| Current liabilities [4200*115%] | € 4,830 | |
| LT debt | € 7,400 | |
| Equity [13400+2484] | € 15,884 | |
| Total liabilities and Equity | € 28,114 | |
| d] | EFN for 2021 = 28750-28114 = | € 636 |
| Financing options available are: | ||
| Sale of common equity [as addition to RE is already | ||
| considered] | ||
| Preferred stock | ||
| Bonds | ||
| Term loans |
