Problem 19.17 If projected sales growth is actually 8.80%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.) (Round answer to 2 decimal places, e.g. 0.45. Enter negative amount using either a negative sign preceding the number e.g. -0.45 or parentheses e.g. (0.45).) Exhibit 19.10 Empire Enterprises: Pro Forma Income Statement and Balance Sheet (5 millions) Income Statement Net sales $ 120.0 108.0 $ 12.0 Costs Net income 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 $ 10.0 $ 54.8 $ 4.8 Total assets $ 60.0 Total liabilities and stockholder's equity External financing needed (EFN) $5.2 $ 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.
Problem 19.17 If projected sales growth is actually 8.80%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.) (Round answer to 2 decimal places, e.g. 0.45. Enter negative amount using either a negative sign preceding the number e.g. -0.45 or parentheses e.g. (0.45).) Exhibit 19.10 Empire Enterprises: Pro Forma Income Statement and Balance Sheet (5 millions) Income Statement Net sales $ 120.0 108.0 $ 12.0 Costs Net income 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 $ 10.0 $ 54.8 $ 4.8 Total assets $ 60.0 Total liabilities and stockholder's equity External financing needed (EFN) $5.2 $ 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.
Chapter12: Corporate Valuation And Financial Planning
Section: Chapter Questions
Problem 12SP
Related questions
Question
![EFN = (Growth rate x Initial assets) – Addition to retained earmings
Exhibit 19.11
External Funding
Needed (EFN) and
Grovth 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
constant.
At some growth rate
(9.6% for Empire
Enterprises), EFN - 0.
A positive EFN
means that the firm
must find external
funding to finance
its growth.
Projected Growth Rate
-$4.8-
At low growth rates, EFN is
negative (EFN < 0), and the
firm has surplus funds.
The EFN is $
millions.
Click if you would like to Show Work for this question: Open Show Work
External Funding Needed ($)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97446883-4bce-4341-a190-6d1ce3035d7f%2Ff5ec0bb4-e606-4e21-a83c-126f8c40bf76%2Fhdqzt5c_processed.png&w=3840&q=75)
Transcribed Image Text:EFN = (Growth rate x Initial assets) – Addition to retained earmings
Exhibit 19.11
External Funding
Needed (EFN) and
Grovth 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
constant.
At some growth rate
(9.6% for Empire
Enterprises), EFN - 0.
A positive EFN
means that the firm
must find external
funding to finance
its growth.
Projected Growth Rate
-$4.8-
At low growth rates, EFN is
negative (EFN < 0), and the
firm has surplus funds.
The EFN is $
millions.
Click if you would like to Show Work for this question: Open Show Work
External Funding Needed ($)
![Problem 19.17
If projected sales growth is actually 8.80%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.) (Round answer to 2 decimal places, e.g. 0.45. Enter negative amount
using either a negative sign preceding the number e.g. -0.45 or parentheses e.g. (0.45).)
Exhibit 19.10 Empire Enterprises: Pro Forma Income Statement and Balance Sheet ($ millions)
Income Statement
Net sales
$ 120.0
Costs
108.0
Net income
$ 12.0
Dividends
24
$ 7.2
Additions to retained earnings
$
4.8
Balance Sheet
Assets
Liabilities and Stockholders' Equity
Change
Change
Assets
$ 60.0
S 10.0
Total debt
$ 20.0
$0.0
4.8
Equity
Total liabilities and stockholder's equity
34.8
Total assets
$ 60.0
$ 10.0
$ 54.8
$ 5.2
$ 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97446883-4bce-4341-a190-6d1ce3035d7f%2Ff5ec0bb4-e606-4e21-a83c-126f8c40bf76%2Fxxusq9_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 19.17
If projected sales growth is actually 8.80%, Calculate the EFN. (Refer to Exhibits 19.10 and 19.11.) (Round answer to 2 decimal places, e.g. 0.45. Enter negative amount
using either a negative sign preceding the number e.g. -0.45 or parentheses e.g. (0.45).)
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
24
$ 7.2
Additions to retained earnings
$
4.8
Balance Sheet
Assets
Liabilities and Stockholders' Equity
Change
Change
Assets
$ 60.0
S 10.0
Total debt
$ 20.0
$0.0
4.8
Equity
Total liabilities and stockholder's equity
34.8
Total assets
$ 60.0
$ 10.0
$ 54.8
$ 5.2
$ 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.
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