If projected sales growth is actually 14.90%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.) Exhibit 19.11EFN = (Growth rate x Initial assets) – Addition to retained eamingsExternal FundingNeeded (EFN) andGrowth for EmpireEnterprisesThe exhibit graphicallyillustrates Equation 19.6,showing the connectionbetween growth rate insales and EFN. Thehorizontal axis plots thefirm's projected growthrate, and the vertical axisplots EFN. The upwardslope of the line illustrateshow external financingincreases with the growthrate, assuming that thedividend policy is heldA positive EFNmeans that the firmmust find extemalAt some growth rate(9.6% for EmpireEnterprises), EFN - 0.funding to financeits growth.$5.29.6%20%Projected Growth Rate-$4.8-At low growth rates, EFN isnegative (EFN < 0), and thefirm has surplus funds.constant.External Funding Needed ($) Exhibit 19.10Empire Enterprises: Pro Forma Income Statement and Balance Sheet ($ millions)Income StatementNet sales$ 120.0Costs108.0Net income$ 12.0Dividends7.2Additions to retained earnings$4.8Balance SheetAssetsLiabilities and Stockholders' EquityChangeChangeAssets$ 60.0$ 10.0Total debt$ 20.0$0.0Equity34.84.8$ 54.8$ 5.2Total assets$ 60.0$ 10.0Total liabilities and stockholder's equity$ 4.8External financing needed (EFN)$ 5.2The pro forma balance sheet for Empire Enterprises does not balance, and the difference is the amount of EFN. Becausethe company's board does not wish to issue common stock, the funding will have to take the form of long-term debt.

Growth Rate = 14.90% Income Statement Particulars Current($) Projected($) Net Sales 120…

Answered: If projected sales growth is actually…

Business

Accounting

If projected sales growth is actually 14.90%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Use the table to answer the question. Noting that 2010 is the base year, real GDP increased by what…

A: The objective of the question is to calculate the percentage increase in real GDP from 2010 to 2011…

Q: Suppose a firm has had the following historic sales figures. Year: 2016 2017 2018 2019 2020…

A: $2,215,000Explanation:The Exponential Triple Smoothing (ETS) method is used by the FORECAST.ETS…

Q: Following are three economic states, their likelihoods, and the potential returns: Economic State…

A: A standard deviation (or σ ) is a measure of how spread out the data is with respect to the mean.

Q: Assume the following. In 2008, the U.S. had real GDP of $16.6 trillion and the CPI was at 90.72. At…

A: Yield to maturity can be calculated by following function in excel =RATE (nper, pmt, pv, [fv],…

Q: The Blazer Company's EPS last year, EPSo, was $1.50. Blazer expects sales to increase by 15% during…

A: Degree of Total leverage (DTL)= DOL x DFLWhereDOL = Degree of operating leverage = 1.25DFL = Degree…

Q: Date January 6 January 13 January 20 January 27 February 3 February 10 February 17 February 24 March…

A: The Sum of Squared Residuals (SSR) is a measure of the difference between the observed values and…

Q: Calculate the intrinsic value of Rio Tinto in each of the following scenarios by using the…

A: The intrinsic value of a share is the estimated true value of a company's stock based on its…

Q: Forecast the next year Income Statement using the base year and growth rates.

A: Income Statement ItemBase YearGrowth RateForecast FormulaSales10020%Sales = Base Year Sales * (1 +…

Q: Following are three economic states, their likelihoods, and the potential returns: Economic State…

A: Expected return is defined as the sum of returns multiplied with respective probabilities. Where as…

Q: Compute the expected rate of return on investment i, given the following information: Rf=9%;…

A: The expected rate of return refers to the minimum required rate by the investors for the investment.…

Q: Assume the following ratios are constant. Total asset turnover Profit margin Equity multiplier…

A: The sustainable growth rate is the maximum rate at which a company can grow its sales and earnings…

Q: Net Sales Cost of Goods Sold Gross Profit Operating Expenses Company a courtertop instaler S764,500…

A: Return on invetsment = Net profit / Owner*s equity

Q: Suppose Micro-Shave growth rate in sales is forecast as 13% rather than 10%. If all ratios stay the…

A: Sales growth rate = 13% s0 = $3000 million A0*/ S0 = 66.666% L0*/ S0 = 6.667% Profit margin (M) =…

Q: Assume the following ratios are constant. Total asset turnover Profit margin Equity multiplier…

A: Total Asset Turnover = tat = 2.22Profit Margin = pm = 5.0%Equity Multiplier = em = 1.69Payout Ratio…

Q: Calculate mean and standard deviation for the following asset. Economic State…

A: Calculation of mean and standard deviation: Answer: Mean for the given asset is 10.00% Standard…

Q: Compute the expected return given these three economic states, their likelihoods, and the potential…

A: Calculation of Expected Return:The expected return is 1.20%.Excel Spreadsheet:

Q: If the nominal rate is 10% and the inflation rate is currently 4.2%, what is the real rate of…

A: Irving Fisher developed the economic theory known as the "Fisher Effect," which explains how…

Q: Suppose a firm has had the following historic sales figures. Year: 2016 2017 2018 2019 2020…

A: The objective of the question is to forecast the next year's sales using the naïve approach. The…

Q: What is the sustainable growth rate if the ROE is 17% and the payout ratio is 25%. a. 12.79% b.…

A: Sustainable growth rate refers to the growth rate that a firm can expect to see in the long term. It…

Q: P8-1 Expected Return Given these three economic states, their likelihoods, ane potential returns,…

A: The expected return is the average return considering the different probabilities of different…

Q: Analysts are projecting that Halyk Bank will have earnings per share of 3.55. If the average…

A: The most recent price with which a security was traded on an exchange is the current price. Buyers…

Q: The SSO ETF is a X2 power share on the S&P500. What would you expect the correlation to be between…

A: The Standard and Poor's 500 also known as the S&P 500 is a stock market index which tracks the…

Q: The following four factors were identifies and later used to explain the return on a stock and level…

A: An asset's returns can be forecasted using the linear relationship between the asset's expected…

Q: Assume the following ratios are constant. Total asset turnover Profit margin Equity multiplier…

A: Sustainable growth rate is used to estimate cash flows projections and for taking decision about…

Q: 6. What is the difference between the Industry potential and a Company's sales forecast? In the…

A: Industrial potential is considered as the gross potential available to be served by the industry…

Q: Assuming costs vary with sales and a 20 percent increase in sales is projected, create the pro forma…

A: Due to our protocol only first three sub-parts are solved as there are four sub-parts. The plug…

Q: Can you show step-by-step working, using the Gordon Growth model for calculating the Rebound Growth…

A: Information Provided: Particulars Pan Elixir Rebound Cheers Think local Last year dividend…

Q: Compute the expected return given these three economic states, their likelihoods, and the potential…

A: Probability Return 0.3 40% 0.4 15% 0.3 -15%

Q: Suppose a firm has had the following historic sales figures. Year: 2016 2017 2018 2019 2020 Sales…

A: Sales increase or decrease because it does not remain the same over time. The company makes an…

Q: Loreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net…

A: Ratio analysis is a tool that establishes a relationship between the different items. It is used to…

Q: Total asset turnover Profit margin Equity multiplier Payout ratio 2.5 5.2% 1.3 22% "hat is the…

Q: Calculate the intrinsic value of Toyota in each of the following scenarios by using the three-stage…

A: To calculate the intrinsic value of Toyota in scenario A using the three-stage growth model, we need…

Q: Suppose the annual returns for North Airline are 12%, 20%, 5%, 5%, 2%, 7% and for South Airline are…

A: Covariance of return statistically measures the variation between two sets of returns and the extent…

Q: Following are three economic states, their likelihoods, and the potential returns: Return 32%…

A: Standard deviation measures the risk involved in earning a return from the stock. lower the risk…

Q: Expected Return Compute the expected return given these three economic states, their likelihoods,…

A: The formula to compute expected return is as follows:

Q: Consider the following information: State of Economy Probability of State of Economy Rate of…

A: In the case of probabilistic data, return is calculated by multiplying each return by its respective…

Q: Assume the following ratios are constant: Total asset turnover Profit margin Equity multiplier…

A: As per DuPont equation, the return on equity is

Q: Assume an initial starting Ft of 306 units, a trend (T) of eight units, an alpha of 0.20, and a…

A: Forecasting demand:Forecasting demand refers to the process of estimating the future demand for a…

Q: Compute the expected return given these three economic states, their likelihoods, and the potential…

A: The expected return refers to the return that the investment provides on average to the investors.…

Question

If projected sales growth is actually 14.90%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.)

Exhibit 19.11
EFN = (Growth rate x Initial assets) – Addition to retained eamings
External Funding
Needed (EFN) and
Growth for Empire
Enterprises
The exhibit graphically
illustrates Equation 19.6,
showing the connection
between growth rate in
sales and EFN. The
horizontal axis plots the
firm's projected growth
rate, and the vertical axis
plots EFN. The upward
slope of the line illustrates
how external financing
increases with the growth
rate, assuming that the
dividend policy is held
A positive EFN
means that the firm
must find extemal
At some growth rate
(9.6% for Empire
Enterprises), EFN - 0.
funding to finance
its growth.
$5.2
9.6%
20%
Projected Growth Rate
-$4.8-
At low growth rates, EFN is
negative (EFN < 0), and the
firm has surplus funds.
constant.
External Funding Needed ($)

Exhibit 19.10
Empire Enterprises: Pro Forma Income Statement and Balance Sheet ($ millions)
Income Statement
Net sales
$ 120.0
Costs
108.0
Net income
$ 12.0
Dividends
7.2
Additions to retained earnings
$
4.8
Balance Sheet
Assets
Liabilities and Stockholders' Equity
Change
Change
Assets
$ 60.0
$ 10.0
Total debt
$ 20.0
$0.0
Equity
34.8
4.8
$ 54.8
$ 5.2
Total assets
$ 60.0
$ 10.0
Total liabilities and stockholder's equity
$ 4.8
External financing needed (EFN)
$ 5.2
The pro forma balance sheet for Empire Enterprises does not balance, and the difference is the amount of EFN. Because
the company's board does not wish to issue common stock, the funding will have to take the form of long-term debt.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Assume an initial starting Ft of 300 units, a trend (Tt ) of eight units, an alpha of 0.30, and a delta of 0.40. If actual demand turned out to be 288, calculate the forecast for the next period.
Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable. Make the following assumptions: current year's sales are $55,750,000; current year's cost of goods sold is $25,350,000; sales are expected to rise by 25%, The firm's investment in accounts receivable in the current year is $12,600,000. The firm's marginal tax rate is 35%. What is the projection for next year's accounts receivable? $10,320,000 $11,345,000 O $15,750,000 $8,772,000
Following are four economic states, their likelihoods, and the potential returns: Probability 0.22 Economic State Fast growth Slow growth Recession Depression 0.52 0.19 0.07 Expected return Standard deviation Compute the expected return and standard deviation. Note: Do not round intermediate calculations and round your answers to 2 decimal places. Return 76% 18 -18 -52 % %
Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2017 2018 Sales $ 750,000 500,000 Multiple Choice O $695,000 $700,000 $750,000 $775.000 2019 $ 700,000 2020 $ 750,000 2021 $ 775,000
Assume that the following ratios are constant. Total asset turnover 1.37, profit margin 6.9%, equity multiplier 1.7, payout ratio 57%. What is the sustainable growth rate?
Consider the following performance attribution data. Weight Style Category Large-cap growth Mid-cap growth Small-cap growth What is the Allocation Effect? Primo 0.60 0.15 0.25 Benchmark 0.50 0.40 0.10 Primo 17% 24 20 Return Benchmark 16% 26 18
Net Income for Company A is $200,000 in 2014, $300,000 in 2015, $400,000 in 2016, $500,000 in 2017, and $600,000 in 2018. The expected growth for all years after 2018 is 5%, the 90-Day T-Bill Rate is 20%, and the appropriate percentage above risk-free rate is 12%. Using this information, what is the reasonable value for Company A based on its future income stream for 2014 to 2018? A. 1,394,267.03 B. 4,394,267.03 A or B?
Following are four economic states, their likelihoods, and the potential returns: Economic State Probability 0.31 0.50 0.16 0.03 Fast growth Slow growth Recession Depression Compute the expected return and standard deviation. (Do not round intermediate calculations and round your answers to 2 decimal places.) Expected return Standard deviation Return 78% 15 -18 -49 % %
If projected sales growth is actually 6.50%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.)
H3. Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.2 30% Slow Growth 0.5 6% Recession 0.3 −2% Please show proper step by step calculation
What is the sustainable growth rate if the ROE is 17% and the payout ratio is 25%. a. 12.79% b. 8.00% c. 14.61% d. 8.62%
Suppose a firm has had the following historic sales figures. Year: 2016 Sales $1,420,000 2017 $1,720,000 Next year's sales 2018 2019 2020 $1,600,000 $2,010,000 $1,770,000 What would be the forecast for next year's sales using FORECAST.ETS to estimate a trend? Note: Round your answer to the nearest whole dollar. 27