Purple Pillows, Inc is using the percent-of-sales method to calculate External F

Question

Purple Pillows, Inc is using the percent-of-sales method to calculate External Financing Needed (EFN) over the next two years. Assume the following:

They are at 100% asset capacity

Depreciation, and interest grow in proportion with sales

The tax rate remains constant over the three years

Long-term notes are the plug variable

Use the attached template to:

Fill in all the blank yellow cells with the appropriate functions

Balance the balance sheet using LT notes as the plug

Ensure that your spreadsheet is fully dynamic by changing the yellow-highlighted growth, tax, and dividend rates

Income Statement 10% 26% 35% Growth Rate Tax Rate Dividend Rate Purple Pillows, Inc 2019 2017 $ 1,000,000 $ (350,000) $(400,000) 2018 Sales COGS SG&A; Operating Income 250,000 Depreciation EBIT Interest paid $(50,000) $200,000 $ $(75,000) Taxable income 125,000 $ $ (32,500) $ 92,500 $ Taxes Net Income Dividend Add to RE $32,375 $60,125

Explanation / Answer

1 .10% growth rate, 26% tax rate, 35% dividend rate, Dollar 80638.5 EFN 2019

2. 15% growth rate, 30% Tax Rate, 40% Dividend Rate, Dollar 157032.75 EFN 2019

3. 20% Growth Rate, 35% Tax Rate, 50% Dividend Rate, Dollar 233427 EFN 2019

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