Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 16, Problem 14P
EXCESS CAPACITY Krogh Lumber’s 2016 financial statements are shown here.
Krogh Lumber
Krogh Lumben Income Statement for December 31, 2016 (Thousands of Dollars)
| Sales | $36,000 |
| Operating costs including depredation | 30,783 |
| Earnings before interest and taxes | $ 5,217 |
| Interest | 1,017 |
| Earnings before taxes | $ 4,200 |
| Taxes (40%) | 1,680 |
| Net income | $ 2,520 |
| Dividends (60%) | $ 1,512 |
| Addition to |
$ 1,008 |
- a. Assume that the company was operating at full capacity in 2016 with regard to all items except fixed assets; fixed assets in 2016 were being utilized to only 75% of capacity. By what percentage could 2017 sales increase over 2016 sales without the need for an increase in fixed assets?
- b. Now suppose 2017 sales increase by 25% over 2016 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 2017 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 longterm 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, and retained earnings?
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Income statement for 2016
(in $)
Sales
2016
360,000
Costs (incl. depr.) 252,000
EBIT
108,000
Interest
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Taxes (28%)
23,240
Net income
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Sales are expected to increase by 10% in 2017, while costs including depreciation are expected to reach 60%
of sales. Interest expenses and the average tax rate are expected to stay constant
Use the following information from Eiffel Company’s financial statements.
2018 IncomeStatement
BalanceSheets
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$309,000
Cost of Goods Sold
(145,000)
Operating Expenses, other than Depreciation Expense
(27,000)
Depreciation expense
(16,000)
Gain on Sale of Plant Assets
16,000
Net Income
$137,000
Dec. 31,2018
Accounts Receivable
$45,300
Inventory
1,600
Accounts Payable
22,500
Accured Liabilities
900
Dec. 31, 2017
Accounts Receivable
$22,250
Inventory
1,800
Accounts Payable
22,250
Accured Liabilities
1,150
Prepare the operating activities section of the statement of cash flows (indirect method) for the year 2018. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.
Eiffel Company
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2018
Operating…
Use the following information from Eiffel Company's financial statements.
2018 Income
Balance
Statement
Sheets
Sales
$309,000
Cost of Goods Sold
(145,000)
Operating Expenses, other than
Depreciation Expense
(27,000)
Depreciation expense
(15,000)
Gain on Sale of Plant Assets
18,000
Net Income
$140,000
Dec. 31,2018
Accounts Receivable
$47,300
Inventory
1,600
Accounts Payable
24,500
Accured Liabilities
900
Dec. 31, 20O17
Accounts Receivable
$23,250
Inventory
1,800
Accounts Payable
23,250
Accured Liabilities
1,150
Prepare the operating activities section of the statement of cash flows (indirect method) for tlte year 2018. U
cash or cash payments.
Eiffel Company
Chapter 16 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
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 - REGRESSION AND INVENTORIES jasper Furnishings has...Ch. 16 - PRO FORMA INCOME STATEMENT At the end of last...Ch. 16 - LONG-TERM FINANCING NEEDED At year-end 2016, 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 - EXCESS CAPACITY Earleton Manufacturing Company has...Ch. 16 - ADDITIONAL FUNDS NEEDED Morrissey Technologies...Ch. 16 - EXCESS CAPACITY Krogh Lumbers 2016 financial...Ch. 16 - INTEGRATED CASE NEW WORLD CHEMICALS INC. FINANCIAL...Ch. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Forecast Earnings Growth Have analysts made any...Ch. 16 - Prob. 4DQCh. 16 - How has Abercrombies stock performed this year...
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