Calculate the sustainable growth rate of East Coast Yachts. Calculate external f
ID: 2646816 • Letter: C
Question
Calculate the sustainable growth rate of East Coast Yachts. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming growth as precisely this rate.
East Coast Yachts
2012 Income Statement
Sales 234,300,000
Cost of Goods Sold 165,074,000
Other Expenses 27,991,000
Depreciation 7,644,000
EBIT 33,591,000
Interest 4,212,600
Taxable Income 29,378,400
Taxes (40%) 11,751,360
Net Income 17,627,040
Dividends 5,288,112
Add to RE 12,338,928
East Coast Yachts
Balance Sheet as of Dec 31, 2012
ASSETS
Current Assets
Cash 3,650,700
Acc Receivable 6,567,600
Inventory 7,363,700
Total 17,582,000
Fixed Assets
Net plant and equipment 112,756,900
Total Assets 130,338,900
LIABILITIES & EQUITY
Current Liabilities
Accounts payable 7,753,000
Notes payable 15,936,300
Total 23,689,300
Long term debt 40,480,000
Shareholders' equity
Common stock 6,200,000
Retained earnings 59,969,600
Total equity 66,169,600
Total liabilities and equity 130,338,900
I calculate the first part of the question:
ROE = 0.26639 = 26.64%
b = 0.7 = 70%
sustainable growth rate = 0.2292 = 22.9%
But now I am having trouble applying this to the pro forma income statement and balance sheet and finding the EFN.
Explanation / Answer
East Coast Yachts
Performa Income statement - 2012
Figures in $
Figures in $
Original
At 22.9% Growth rate
Particulars
sales
234300000
287954700
Cost of goods sold
165074000
202875946
EBIDTA
69226000
85078754
other Expenses
27991000
34400939
depreciation
7644000
9394476
EBIT
33591000
41283339
Interest
4212600
4212600
Taxes
11751360
14828296
Profit after tax
17627040
22242443
Dividend
5288112
5288112
Profits transferred to retained earnings
12338928
16954331
Interest & dividend remains constant. Interest amount may change if external funds are borrowed as debt.
Tax rate is assumed at 40% at calculated on EBT of $ 37070739
I have assumed increase in fixed assets due to sustainable growth rate so depreciation will also increase by 22.9%
East Coast Yachts
Performa Balance sheet - 2012
Liabilities
Figures in $
Figures in $
Original
At 22.9% growth
Shareholders fund
Common stock
6200000
6200000
Retained earnings
59969600
76923931
long term debt
40480000
40480000
Total Long term liabilities (A)
106649600
123603931
Accounts payable
7753000
9528437
Notes payable
15936300
19585713
Total Short term liabilities (B)
23689300
29114150
Total Liabilities (A+B)
130338900
152718081
Assets
Figures in $
Figures in $
Fixed Assets
Net plant & equipment
112756900
138578230
Current assets
Account receivable
6567600
8071580
Inventory
7363700
9049987
Cash
3650700
4486710
Total Assets
130338900
160186508
External Funds needed (total assets -total liabilities)
7468427
East Coast Yachts
Performa Income statement - 2012
Figures in $
Figures in $
Original
At 22.9% Growth rate
Particulars
sales
234300000
287954700
Cost of goods sold
165074000
202875946
EBIDTA
69226000
85078754
other Expenses
27991000
34400939
depreciation
7644000
9394476
EBIT
33591000
41283339
Interest
4212600
4212600
Taxes
11751360
14828296
Profit after tax
17627040
22242443
Dividend
5288112
5288112
Profits transferred to retained earnings
12338928
16954331
Interest & dividend remains constant. Interest amount may change if external funds are borrowed as debt.
Tax rate is assumed at 40% at calculated on EBT of $ 37070739
I have assumed increase in fixed assets due to sustainable growth rate so depreciation will also increase by 22.9%
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