FIN 3715 Chapter : Ch2 Pg2TB
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Graffiti Advertising, Inc., reported the following financialstatements for the last two years.
2016 Income Statement | |||
Sales | $ | 567,200 | |
Costs of goods sold | 274,005 | ||
Selling and administrative | 124,729 | ||
Depreciation | 54,572 | ||
EBIT | $ | 113,894 | |
Interest | 19,384 | ||
EBT | $ | 94,510 | |
Taxes | 37,804 | ||
Net income | $ | 56,706 | |
Dividends | $ | 10,000 | |
Addition to retained earnings | $ | 46,706 | |
GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2015 | |||||||
Cash | $ | 13,360 | Accounts payable | $ | 9,500 | ||
Accounts receivable | 18,990 | Notes payable | 14,504 | ||||
Inventory | 13,798 | Current liabilities | $ | 24,004 | |||
Current assets | $ | 46,148 | |||||
Long-term debt | $ | 136,480 | |||||
Net fixed assets | $ | 344,546 | Owner's equity | $ | 230,210 | ||
Total assets | $ | 390,694 | Total liabilities and ownersâ equity | $ | 390,694 | ||
GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2016 | |||||||
Cash | $ | 14,346 | Accounts payable | $ | 10,516 | ||
Accounts receivable | 21,095 | Notes payable | 16,470 | ||||
Inventory | 22,758 | Current liabilities | $ | 26,986 | |||
Current assets | $ | 58,199 | |||||
Long-term debt | $ | 152,400 | |||||
Net fixed assets | $ | 406,307 | Owner's equity | $ | 285,120 | ||
Total assets | $ | 464,506 | Total liabilities and ownersâ equity | $ | 464,506 | ||
a. Calculate the operating cash flow.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)
Operating cash flow $
b. Calculate the change in net working capital.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)
Change in net working capital $
c. Calculate the net capital spending. (Donot round intermediate calculations and round your answer to thenearest whole number, e.g., 32.)
Net capital spending $
d. Calculate the cash flow from assets. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.)
Cash flow from assets $
e. Calculate the cash flow to creditors.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)
Cash flow to creditors $
f. Calculate the cash flow to stockholders.(A negative answer should be indicated by a minus sign. Donot round intermediate calculations and round your answer to thenearest whole number, e.g., 32.)
Cash flow to stockholders $
Executive Fruitâs financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs. |
a. | Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.) |
Base Case | 20% Growth | 5% Growth | ||||
INCOME STATEMENT | ||||||
Revenue | $ | 7,000 | $ | $ | ||
Cost of goods sold | 6,300 | |||||
EBIT | $ | 700 | $ | $ | ||
Interest | 140 | |||||
Earnings before taxes | $ | 560 | $ | $ | ||
State and federal tax | 224 | |||||
Net income | $ | 336 | $ | $ | ||
Dividends | 224 | |||||
Retained earnings | $ | 112 | $ | $ | ||
BALANCE SHEET | ||||||
Assets | ||||||
Net working capital | $ | 700 | $ | $ | ||
Fixed assets | 2,800 | |||||
Total assets | $ | 3,500 | $ | $ | ||
Liabilities and shareholders' equity | ||||||
Long-term debt | $ | 1,400 | $ | $ | ||
Shareholders' equity | 2,100 | |||||
Total liabilities and shareholders' equity | $ | 3,500 | $ | $ | ||
Required external financing | $ | $ | ||||
b. | Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.) |
BALANCE SHEET | ||||||
Base Case | 20% Growth | 5% Growth | ||||
Assets | ||||||
Net working capital | $ | 700 | $ | $ | ||
Fixed assets | 2,800 | |||||
Total assets | $ | 3,500 | $ | $ | ||
Liabilities and shareholders' equity | ||||||
Long-term debt | $ | 1,400 | $ | $ | ||
Shareholders' equity | 2,100 | |||||
Total liabilities and shareholders' equity | $ | 3,500 | $ | $ | ||