The most recent financial statements for Fleury Inc., follow. Sales for 2012 are

Question

The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

Explanation / Answer

Assuming costs vary with sales and a 20 percent increase in sales, the pro forma income statement will look like this:      Pro Forma Income Statement Sales 901,200 Costs 703,200 Other expenses 26,400 EBIT 171,600 Interest 18,000 Taxable income $153,600 Taxes(40%) 61,440 Net income $92,160 The payout ratio is constant, so the dividends paid this year is the payout ratio from last year times net income, or: Dividends = (30000/75000)(92160) Dividends = $36864 And the addition to retained earnings will be: Addition to retained earnings = $92160

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