ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.’s 2019 financial statements are shown here.
Morrissey Technologies Inc.:
Morrissey Technologies Inc.: Income Statement for December 31, 2019
Suppose that in 2020, sales increase by 10% over 2019 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2019 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 87.5% 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 2020 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm
- 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 ? - 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.)
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Chapter 16 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
- DIVIDENDS Brooks Sporting Inc. is prepared to report the following 2019 income statement (shown in thousands of dollars). Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 320,000 shares of common stock outstanding, and its stock trades at 37 per share. a. The company had a 25% dividend payout ratio in 2018. If Brooks wants to maintain this payout ratio in 2019, what will be its per-share dividend in 2019? b. If the company maintains this 25% payout ratio, what will be the current dividend yield on the companys stock? c. The company reported net income of 1.35 million in 2018. Assume that the number of shares outstanding has remained constant. What was the companys per-share dividend in 2018? d. As an alternative to maintaining the same dividend payout ratio. Brooks is considering maintaining the same per-share dividend in 2019 that it paid in 2018. If it chooses this policy, what will be the companys dividend payout ratio in 2019? e. Assume that the company is interested in dramatically expanding its operations and that this expansion will require significant amounts of capital. The company would like to avoid transactions costs involved in issuing new equity. Given this scenario, would it make more sense for the company to maintain a constant dividend payout ratio or to maintain the same per-share dividend? Explain.arrow_forwardThe most recent financial statements for xyz inc. follow. Sales for 2019 are projected to grow by 22 percent. Interest expense will remain constant, the tax rate and dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales. If the firm is operating at full capacity and no new debt or equity is issued. How much external financing is needed to support the 16 percent growth rate in sales? Income statement 2019 Net sales 17,300 Cost of Goods Sold 10,600 Depreciation 3,250 Earning before interest and taxes 3,450 Interest paid 680 Taxable income 2,770 Taxes 940 Net income…arrow_forwardThe sales revenue of Business Strategy Limited for 2019 is $100 million. The CEO told the sales director in December of 2019 that the board had set a target of $145 million in sales revenue for 2022 and expected that there should be stable annual growth of sales over the 3 years. The board expects the growth rate will be maintained continuously in future years. The market has the same expectation of the board. Business Strategy Limited is expected to pay dividend of $20 per common stock at the end of the year 2020. The market price of the common stock at the beginning of 2020 is $1,000.What is the required rate of return on Business Strategy Limited’s common stock?arrow_forward
- Given the following information, if the firm wants to grow sales by 70% next year, and it is operating at 80% capacity, what is the additional funds using the AFN equation? Liabilities and Equity Assets 2023 Cash & sec. 100 Accounts payable & accruals Accounts rec. 300 Notes payable 2023 250 200 Inventories 500 Total CA 900 Total CL 450 L-T debt 600 Common stock 300 Net fixed Assets 700 Retained Earnings 250 Total assets 1600 Total claims 1600 Income Statement 2023 Sales 3000 Less: COGS (60%) 1800 SGA costs (20%) 600 EBIT 600 Interest (at 10%) 80 EBT 520 Taxes (40%) 208 Net income 312 Dividends (20%) 62 Add'n to RE 250 POR 20%arrow_forwardUtilize the 2019 financial statements for Micron Industries provided on page 1 and assume that the company is currently operating below capacity, at 80%.Required: Prepare Pro-Forma statements for 2020 (rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue. No new equity is raised. Sales are projected to increase by 15% The tax rate and the dividend payout ratio will remain constant. Interest Expense and Depreciation Expense will remain unchanged.Clearly state if Micron Industries will require external financing or would have excess financing in 2020, and how much.arrow_forwardS The most recent financial statements for Crosby, Incorporated, appear below. Sales for 2022 are projected to grow by 30 percent. Interest expense will remain constant, the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable Increase spontaneously with sales. Sales Costs Other expenses Earnings before interest and taxes Interest expense Taxable income Taxes (25%) Net Income CROSBY, INCORPORATED 2021 Income Statement Dividends Addition to retained earnings Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets EFN $ 19,240 49,760 Assets $ 26,240 35,760 72,320 CROSBY, INCORPORATED Balance Sheet as of December 31, 2021 $ 134,320 $ 230,000 $ 773,000 629,000 34,000 $364,320 $ 110,000 18,000 $ 92,000 23,000 $ 69,000 Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and…arrow_forward
- I need some explanation of a problem. I ended up with the right answer but I'm not quite sure how I did. Here is the question: Garlington Technologies Inc.'s 2019 financial statements are shown here. Suppose that in 2020 sales increase to $4.4 million and that 2020 dividends will increase to $200,000. Forecasting the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 12%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Answer $98,000 Income statement for December 31, 2019 Sales $4,000,000 Operating costs 3,200,000 EBIT $800,000 Interest 120,000 Pre-tax earnings $680,000 Taxes (25%) 170,000 Net income $510,000 Dividends $190,000 Balance Sheets as of December 31, 2019…arrow_forwardThe most recent financial statements for Crosby, Incorporated, follow. Sales for 2022 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. CROSBY, INCORPORATED 2021 Income Statement $ 686,530 Sales Costs Other expenses Earnings before interest and taxes Interest expense Taxable income Taxes (21%) Net income Dividends Addition to retained earnings $27,475 56.265 554,420 14,020 $ 118.090 12,090 $106,000 22,260 $ 83,740 CROSBY, INCORPORATED Balance Sheet as of December 31, 2021 Assets Liabilities and Owners' Equity Current assets Current liabilities Cash Accounts receivable $ 20,940 31,970 Accounts payable Notes payable $ 53,790 13,215 Inventory 71,320 Total Total $124,230 Long-term debt $ 67,005 $127,500 Owners' equity Fixed assets Net plant and equipment $341,980 Total assets Common stock…arrow_forwardThe most recent financial statements for Crosby, Incorporated, appear below. Sales for 2022 are projected to grow by 20 percent. Interest expense will remain constant, the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Sales Costs Other expenses Earnings before interest and taxes Interest expense Taxable income Taxes (21%) Net Income CROSBY, INCORPORATED 2021 Income Statement Dividends Addition to retained earnings Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets $ 26,694 59,416 $ 21,840 44,780 103,960 $ 170,580 $435,000 $759,000 594,000 30,000 CROSBY, INCORPORATED Balance Sheet as of December 31, 2021 Assets 605,580 $ 135,000 26,000 $ 109,000 22,890 $ 86,110 Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in…arrow_forward
- please helparrow_forwardThe most recent financial statements for Hopington Tours Inc. follow. Sales for 2020 are projected to grow by 25%. Interest expense will remain constant, the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable Increase spontaneously with sales. The firm is operating at full capacity and no new debt or equity is issued. HOPINGTON TOURS INC. 2019 Statement of Comprehensive Income Other expenses Earnings before interest and taxes Interest paid Taxable income Taxes (30%) Net income Dividends Addition to retained earnings Current assets Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets Sales Costs Other expenses EBIT Interest Taxable income Taxes (30%) Net income Assets Dividends Add. to RE Current assets Cash HOPINGTON TOURS INC. Pro Forma Statement of Comprehensive Income 25 % Sales Growth $ Accounts receivable Inventory Total Total assets Fixed assets Net plant and equipment…arrow_forwardThe most recent financial statements for Crosby, Incorporated, follow. Sales for 2021 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Sales Costs Other expenses CROSBY, INCORPORATED 2020 Income Statement Earnings before interest and taxes Interest paid Taxable income Taxes (24%) Net income Dividends Addition to retained earnings Current assets Cash Accounts receivable Inventory Total Total assets $ 23,440 50,584 Fixed assets Net plant and equipment $ 224,000 EFN $ 25,640 35,100 71,780 $ 132,520 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets $ 767,000 623,000 31,000 $ 356,520 $ 113,000 15,600 $ 97,400 23.376 $ 74,024 Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus…arrow_forward
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