The following are the first stage and second stage pro forma financial statement

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.)

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.):

Explanation / Answer

Dividends in 2015 fall by $ 99 thousand (the original dividend payout ratio is $ 198 / $ 297 = 2/3). Thus, the requirement for external financing falls from $ 176 thousand to $ 77 thousand. Simultaneously, the shareholders' equity will be increased by $ 99 thousand The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): All Amounts in $   Long-term debt 1,177   Shareholders' equity 1,848   Total 3,025

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.