Fundamentals of Financial Management, Concise Edition
10th Edition
ISBN: 9781337911054
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning US
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Textbook Question
Chapter 16, Problem 14P
EXCESS CAPACITY Krogh Lumber’s 2019 financial statements are shown here.
Krogh Lumber:
Krogh Lumber: Income Statement for December 31, 2019 (thousands of dollars)
- a. Assume that the company was operating at full capacity in 2019 with regard to all items except fixed assets; fixed assets in 2019 were being utilized to only 75% of capacity. By what percentage could 2020 sales increase over 2019 sales without the need for an increase in fixed assets?
- b. Now suppose 2020 sales increase by 25% over 2019 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 82% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2020 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm
forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 11%. Any stock issuances or repurchases will be made at the firm’s current stock price of $40. Develop Krogh’s projected financial statements like those shown in Table 16.2. What are the balances of notes payable, bonds, common stock, andretained earnings ?
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PROBLEM 2
On July 1, 2022, LTU Contracting, Inc. purchased a new Peiner SK575 Tower Crane for
a total cost of $875,000. The crane has an estimated useful life of five (5) years. For
financial reporting (book) purposes, the company utilizes straight line depreciation. For
tax purposes, the equipment is depreciated over five years utilizing the 200% declining
balance method.
A. Prepare a table that computes the book and tax depreciation for each year of the
useful life and determine the difference in book value between each method at
the end of each year.
B. On July 1st, 2025, the company is considering selling the crane for $500,000.
Compute what the gain or loss would have been at that time for both book and
tax purposes.
Brightwoodę Furniture provides the following financial data for a
given enod:
Sales
Aount ($) Per Unit ($)
150,000
13
Less Variable E
-
L96,000
13
Contribwaon Margin c
1C
Less Fixed Expenses
$5,000
et Income
125,000
a. What is the company's CM ratio?
b. If quarterly sales increase by $5,200 and there is no change in fixed
expenses, by how much would you expect quarterly net operating
income to increase?
Chapter 16 Solutions
Fundamentals of Financial Management, Concise Edition
Ch. 16 - Prob. 1QCh. 16 - Assume that an average firm in the office supply...Ch. 16 - Would you agree that computerized corporate...Ch. 16 - Certain liability and net worth items generally...Ch. 16 - Suppose a firm makes the following policy changes....Ch. 16 - AFN EQUATION Carlsbad Corporations sales are...Ch. 16 - AFN EQUATION Refer to Problem 16-1. What...Ch. 16 - AFN EQUATION Refer to Problem 16-1 and assume that...Ch. 16 - PRO FORMA INCOME STATEMENT Austin Grocers recently...Ch. 16 - EXCESS CAPACITY Williamson Industries has 7...
Ch. 16 - Prob. 6PCh. 16 - PRO FORMA INCOME STATEMENT At the end of last...Ch. 16 - LONG-TERM FINANCING NEEDED At year-end 2019, total...Ch. 16 - SALES INCREASE Paladin Furnishings generated 4...Ch. 16 - REGRESSION AND RECEIVABLES Edwards Industries has...Ch. 16 - REGRESSION AND INVENTORIES Charlies Cycles Inc....Ch. 16 - Prob. 12PCh. 16 - ADDITIONAL FUNDS NEEDED Morrissey Technologies...Ch. 16 - EXCESS CAPACITY Krogh Lumbers 2019 financial...Ch. 16 - Prob. 1TCLCh. 16 - FORECASTING THE FUTURE PERFORMANCE OF ABERCROMBIE ...
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