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Morrissey Technologies Inc.'s 2021 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 $180,000 Accounts payable $360,000 360,000 56,000 720,000 180,000 $1,260,000 $596,000 100,000 1,800,000 204,000 $2,700,000 Cash Receivables Inventories Total current assets Fixed assets Total assets 1,440,000 $2,700,000 Notes payable Accrued liabilities Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2021 Sales $3,600,000

Morrissey Technologies Inc.'s 2021 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 $180,000 Accounts payable $360,000 360,000 56,000 720,000 180,000 $1,260,000 $596,000 100,000 1,800,000 204,000 $2,700,000 Cash Receivables Inventories Total current assets Fixed assets Total assets 1,440,000 $2,700,000 Notes payable Accrued liabilities Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2021 Sales $3,600,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Do not round intermediate calculations. Round your answers to the nearest cent. Morrissey Technologies Inc.: Pro Forma Income Statement December 31, 2022 2022 2021 $3,600,000 3,279,720 $320,280 20,280 $300,000 75,000 $225,000 Sales Operating costs (includes depreciation) EBIT Interest expense EBT Taxes (25%) Net Income Dividends (60%) Addition to retained earnings Assets Cash Accounts receivable Inventories Fixed assets Total assets $ $ Liabilities and Equity Payables + accruals Short-term bank loans Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity Morrissey Technologies Inc.: Pro Forma Balance Statement December 31, 2022 2021 $180,000 360,000 720,000 1,440,000 $2,700,000 $540,000 56,000 $596,000 100,000 $ $696,000 1,800,000 204,000 $2,004,000 $2,700,000 $ $ $ $ $ $ $ $ $ $ $ $ 2022 b. If the profit margin remains at 6.25% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Do not round intermediate calculations. Round your answer to two decimal places. %6
Transcribed Image Text:a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Do not round intermediate calculations. Round your answers to the nearest cent. Morrissey Technologies Inc.: Pro Forma Income Statement December 31, 2022 2022 2021 $3,600,000 3,279,720 $320,280 20,280 $300,000 75,000 $225,000 Sales Operating costs (includes depreciation) EBIT Interest expense EBT Taxes (25%) Net Income Dividends (60%) Addition to retained earnings Assets Cash Accounts receivable Inventories Fixed assets Total assets $ $ Liabilities and Equity Payables + accruals Short-term bank loans Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity Morrissey Technologies Inc.: Pro Forma Balance Statement December 31, 2022 2021 $180,000 360,000 720,000 1,440,000 $2,700,000 $540,000 56,000 $596,000 100,000 $ $696,000 1,800,000 204,000 $2,004,000 $2,700,000 $ $ $ $ $ $ $ $ $ $ $ $ 2022 b. If the profit margin remains at 6.25% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Do not round intermediate calculations. Round your answer to two decimal places. %6
Morrissey Technologies Inc.'s 2021 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 $180,000 Accounts payable $360,000 360,000 Notes payable 56,000 720,000 Accrued liabilities 180,000 $1,260,000 Total current liabilities $596,000 100,000 Cash Receivables Inventories Total current assets Fixed assets Total assets 1,440,000 $2,700,000 EBIT Interest Operating costs including depreciation Long-term debt Common stock Retained earnings Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2021 Sales $3,600,000 3,279,720 1,800,000 204,000 $2,700,000 $320,280 20,280 $300,000 75,000 $225,000 EBT Taxes (25%) Net Income Per Share Data: Common stock price $45.00 Earnings per share (EPS) $2.25 $1.35 Dividends per share (DPS) Suppose that in 2022, sales increase by 15% over 2021 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2021 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 89% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2022 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
Transcribed Image Text:Morrissey Technologies Inc.'s 2021 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2021 $180,000 Accounts payable $360,000 360,000 Notes payable 56,000 720,000 Accrued liabilities 180,000 $1,260,000 Total current liabilities $596,000 100,000 Cash Receivables Inventories Total current assets Fixed assets Total assets 1,440,000 $2,700,000 EBIT Interest Operating costs including depreciation Long-term debt Common stock Retained earnings Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2021 Sales $3,600,000 3,279,720 1,800,000 204,000 $2,700,000 $320,280 20,280 $300,000 75,000 $225,000 EBT Taxes (25%) Net Income Per Share Data: Common stock price $45.00 Earnings per share (EPS) $2.25 $1.35 Dividends per share (DPS) Suppose that in 2022, sales increase by 15% over 2021 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2021 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 89% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2022 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
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