The following are the first stage and second stage pro forma financial statement
ID: 2483229 • Letter: T
Question
The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
a) How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3?_________
b) 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.)
c)Dividends fall by $____________ .
Therefore, the requirement for external financing falls from $_________ to $__________ . On the other hand, shareholders' equity will be increased by $___________ .
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
The following is the financial statement of Executive Fruit Company for the year ended December 2014.Explanation / Answer
We will first calculate the dividend payout of 2015, if it is reduced to 1/3
The original dividend payout is $ 432,000
The revised payout is = $432,000 /3 = $144,000
The difference between original and revised dividend payout is
Difference = $ 432,000 - $144,000 = $288,000 or
This difference will be added to retained earnings in the come statement
The revised retained earnings for 2015 will be
Revised retained earnings = $216,000 + $288,000 = $504,000 or $504 in thousands
The retained earnings will be added to shareholders equity. The revised shareholders equity will be
Revised Shareholder equity in 2015 = Share holder equity in 2014 + retained earnings in 2015
Revised Shareholder equity in 2015 = $ 3600 + $504 = $4,104 in thousands
A ) revised financial modeling if revised dividend is taken
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital
$
1,320
Fixed assets
5,280
Total assets
$
6,600
Liabilities and shareholders' equity
Long-term debt
$
2,400
Shareholders' equity
4,104
Total liabilities and shareholders' equity
$
6,504
Required external financing
$
96
B) The revised external borrowing is $96 thousand
C) Dividends fall by $__288,000 .
Therefore, the requirement for external financing falls from $ 384,000to $ 96,000 . On the other hand, shareholders' equity will be increased by $_288,000
D).
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt
$2496
Shareholders' equity
4104
Total
$ 6600
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital
$
1,320
Fixed assets
5,280
Total assets
$
6,600
Liabilities and shareholders' equity
Long-term debt
$
2,400
Shareholders' equity
4,104
Total liabilities and shareholders' equity
$
6,504
Required external financing
$
96
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