The following are the first stage and second stage pro forma financial statement
ID: 2737476 • Letter: T
Question
The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)
A.
Dividends fall by _____. Therefore, the requirement for external financing falls from______ to ______ . On the other hand, shareholders' equity will be increased by ______ .
B.
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
The following is the financial statement of Executive Fruit Company for the year ended December 2014.Explanation / Answer
Divident payout Ratio = 180/270 x 100 = 66.67%
Revised Dividend payout Ratio = 22.22%
Dividend in 2015 = $ 180,000
Revised Dividend for 2015 = $ 59,999
Required External Financing = $ 160,000
Revised External Financing = $ 39,999
A.
Dividend Falls by $ 120,001
2nd stage proforma Balance Sheet :
Requirement for external financing falls from $ 160,000 to $ 39,999
Share holders equity will be increased by $ 120,001
B.
Long-term debt(Balance)
($1,000,000+$39,999)
Shareholders' equity
($1,590,000+$120,001)
2nd Proforma Balance sheetLong-term debt(Balance)
($1,000,000+$39,999)
$ 1,039,999Shareholders' equity
($1,590,000+$120,001)
$ 1,710,001 Total $ 2,750,000Related Questions
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