The following are the first stage and second stage pro forma financial statement

Question

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.

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 $ . 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

1)

Dividends fall by $ 207 . Therefore, the requirement for external financing falls from $ 368 to $ 161 . On the other hand, shareholders' equity will be increased by $ 207 .

Working

Dividends fall by = 414 - 621*1/3

Dividends fall by = $ 207

External financing falls to = 368 - 207

External financing falls to = 161

2)

Working

Long-term debt = 2300 + 161 = 2461

Shareholders' equity = 3657 + 207 = 3864

  Long-term debt 2461   Shareholders' equity 3864   Total 6325

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