The Dalmation Corporation expects the following summarized financial results thi

Question

The Dalmation Corporation expects the following summarized financial results this year ($000).

Use the EFR relation to estimate Dalmation's external funding.

a.Sales growth of 15%

b.Sales growth of 18% and a reduction in the payout ratio to 25%

c.Sales growth of 25%, elimination of dividends, and a 4% improvement in ROS

Income Statement Balance Sheet revenue- $10,500 Assets Cost-9,100 Current - 5500 Tax- 560 Fixed - 6900 Net Income- 840 Total - 12400 Dividends- 420 Liabilities & Equity Current - 320 Debt - 5080 Equity - 7000 Total L&E - 12400

Explanation / Answer

EBT = $10,500-$9,100 = $1,400

Tax rate = $560/$1,400 = 40%

ROS = $840/$10,500 = 8%

EFR = g(ASSETS)-g(C/L)-(1-d)ROS(1+g)SALES

a.EFR= .15($12,400)-.15($320)-(1-.5)(.08)(1.15)($10,500)= $1,860-$48-$483= $1,329

b.EFR= .18($12,400)-.18($320)-(1-.25)(.08)(1.18)($10,500)= 1431 $

c.EFR= .25($12,400)-.25($320)-(1)(.12)(1.25)($10,500)= $3,100-$80-$1,575= $1,445.

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