The following is the financial statement of Executive Fruit Company for the year
ID: 2754038 • Letter: T
Question
The following is the financial statement of Executive Fruit Company for the year ended December 2014. INCOME STATEMENT, 2014 (Figures in $ Thousands) Revenue $ 11,000 Cost of goods sold 9,900 EBIT $ 1,100 Interest 220 Earnings before taxes $ 880 State and federal tax 352 Net income $ 528 Dividends 352 Additions to retained earnings $ 176 BALANCE SHEET (Year-End, 2014) (Figures in $ Thousands) Assets Net working capital $ 1,100 Fixed assets 4,400 Total assets $ 5,500 Liabilities and shareholders' equity Long-term debt $ 2,200 Shareholders' equity 3,300 Total liabilities and shareholders' equity $ 5,500 The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015. First stage pro forma statements: PRO FORMA INCOME STATEMENT, 2015 (Figures in $ Thousands) Revenue $ 12,100 Cost of goods sold 10,890 EBIT $ 1,210 Interest 220 Earnings before taxes $ 990 State and federal tax 396 Net income $ 594 Dividends 396 Additions to retained earnings $ 198 PRO FORMA BALANCE SHEET (Year-End, 2015) (Figures in $ Thousands) Assets Net working capital $ 1,210 Fixed assets 4,840 Total assets $ 6,050 Liabilities and shareholders' equity Long-term debt $ 2,200 Shareholders' equity 3,498 Total liabilities and shareholders' equity $ 5,698 Required external financing $ 352 Second stage pro forma balance sheet: PRO FORMA BALANCE SHEET (Year-End, 2015) (Figures in $ Thousands) Assets Net working capital $ 1,210 Fixed assets 4,840 Total assets $ 6,050 Liabilities and shareholders' equity Long-term debt $ 2,552 Shareholders' equity 3,498 Total liabilities and shareholders' equity $ 6,050 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.) Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ . The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): Long-term debt $ Shareholders' equity Total $
Explanation / Answer
Answers:(all in thousands) the required external financing:154,Dividends fall by (396-198)$=$198,Therefore, the requirement for external financing falls from $352 to $154,shareholders' equity will be increased by $ 198.00,The right-hand side of the balance sheet becomes : Long-term debt 2,354 $ Shareholders' equity $3,696 Total $6,050
Income statement Year 2015 Sales Revenue 12,100 Cost of Goods Sold 10,890 EBIT 1,210 Interest Expense 220 Income Before taxes 990 Taxes 396 Net Income(NI) 594 Dividends 198 (1/3*NI) Retention Ratio(RR) 0.67 (1-Payoutratio of 1/3) Addition to Equity(NI*RR) 396Related Questions
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