Problem 4-25 Capacity Usage and Growth [LO2] - Do not sell fixed assets The most
ID: 2523831 • Letter: P
Question
Problem 4-25 Capacity Usage and Growth [LO2] - Do not sell fixed assets
The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 10 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets and accounts payable increase spontaneously with sales.
In 2016, the firm operated at 70 percent of capacity. Construct the pro forma income statement and balance sheet for the company. Assume that the company cannot sell fixed assets. This implies that asset utilization may remain less than 100 percent next year as well. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
What is the EFN? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32. A negative answer should be indicated by a minus sign.)
EFN $
I got answer for EFN is -62165 but it say is not correst, can anyone solve this for me thank you
RETRO MACHINE, INC.2016 Income Statement Sales $ 744,050 Costs 578,850 Other expenses 15,550 Earnings before interest and taxes $ 149,650 Interest paid 11,300 Taxable income $ 138,350 Taxes (35%) 48,423 Net income $ 89,928 Dividends $ 26,989 Addition to retained earnings 62,939
Explanation / Answer
RETRO MACHINE, INC. 2017 Performa Income Statement 2016 2017 Working Sales $744,050 $818,455 =$744050*110% Less: Costs $578,850 $636,735 =$578850*110% Less: Other expenses $15,550 $17,105 =15550*110% Earnings before interest and taxes $149,650 $164,615 Less: Interest paid $11,300 $11,300 Interest Paid Constant Taxable income $138,350 $153,315 Less: Taxes (35%) $48,423 $53,660 Tax Rate Same Net income $89,928 $99,655 Dividends $26,989 $29,908 =(26989/89928)*99655 Addition to retained earnings $62,939 $69,747 RETRO MACHINE, INC. 2017 Proforma Balance Sheet Current Asets Current liabilties Cash (22990*110%) $25,289 Accounts payable(61390*110%) $67,529 Accounts receivable(36710*110%) $40,381 Notes payable $15,420 Inventory (78280*110%) $86,108 Total $82,949 Total $151,778 Long term debt $142,100 Fixed assets Owner's equity Net Plant.equipment $371,890 Common stock $127,000 Retained earnings (163960+69747) $233,707 Total Assets $523,668 Total $585,756 EFN (Negative) -$62,088
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