FINA 3320.001 30. Principles of Finance Il 2017 Narrow Falls Lumber 2015 Income

Question

FINA 3320.001 30. Principles of Finance Il 2017 Narrow Falls Lumber 2015 Income Statement Net sales Cost of goods sold Depreciation EBIT Interest Taxable income Taxes Net income Dividends $848,600 542,800 147400 $158,400 $145,800 51,800 S 94,000 $28,200 Narrow Falls Lumber Balance Sheets as of December 31, 2014 and 2015 2015 2014 $ 32,300 26,900Accounts payable78,900 79,200 50,00040,000 295,600 354,500 Cash Accounts receivable! 74,700| 99,500 | 72.300J.?Notes payable 97,800 1?1 Long-term debt Common stock Inventory and paid-in surplus ($1 par value) Retained earnings Total liabilities & owners' equity 70,000175,000 319100| Net fixed assets 07 100 705000 253300 Total assets $913,600 $902,000 $913,600 $902,000 Assume that all costs, assets, and accounts payable change spontaneously with sales. For simplicity's sake, assume interest expense also changes spontancously with sales (even though you know if may not). The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 15 percent for next year, what will be the amount of external financing needed to support this level of growth?

Explanation / Answer

ROE using 3 components of Dupoint Analysis
Return on Equity = Net Profit margin * Asset Turnover * Equity Multiplier
=(Net Income/Sales) * (Sales /Total Asset) * (Total Assets/ Equity)
(Net Income/Sales) = 94,000/848,600 =0 .11077 or 11.077%
(Sales /Total Asset)= 848,600/913,600 = 0.92885 or 92.89%
Equity = Common Stock + Retained Earnings = 170,000 + 319,100 = 489,100
(Total Assets/ Equity) = 913,600/489100 = 1.8679 or 186.79%
ROE =(Net Income/Sales) * (Sales /Total Asset) * (Total Assets/ Equity) = 0.11077* 0.92885 * 1.8679 = 0.19218 or 19.22%

Best of Luck. God Bless

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