QUESTION 1 Given the financial statements below for Firefly

QUESTION 1. Given the financial statements below for Firefly Enterprises, what is the external financing need for a pro forma increase in sales of 18%? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.

Firefly Enterprises Income Statement ($ Million) 2011

Sales 740

Cost of Goods Sold 452

Selling, General, & Admin Exp. 124

Depreciation 40

Earnings Before Interest & Taxes 124

Interest Expense 24

Taxable Income 100

Taxes at 40% 40

Net Income 60

Dividends 18

Addition to Retained Earnings 42

Balance Sheets as of 12-31

Assets 2010 2011

Cash 20 20

Account Receivable 102 110

Inventory 76 80

Total Current Assets 198 210

Net Fixed Assets 352 410

Total Assets 550 620

Liabilities and Owners Equity

2010 2011

Accounts Payable 62 70

Notes Payable 0 0

Total Current Liabilities 62 70

Long-Term Debt 280 300

Common Stock 34 34

Retained Earnings 174 216

Total Liab. and Owners Equity 550 620

Solution

Firefly Enterprises Income statement ($ million) 2011 Working 2012 Sales 740 740*1.18      873.20 Less : Cost of Goods Sold -452 452/740*873.20    (533.36) Gross Profit 288      339.84 Less : Selling, General & Admin Exp. 124 124/740*873.20    (146.32) Depreciation 40 -164      (40.00) Earnings Before interest and tax 124      153.52 Less : Interest -24      (24.00) Earnings before tax 100      129.52 Less : Tax -40         51.81 Net Income 60         77.71 Dividends -18 0.30         23.31 Addition to retained earnings 42         54.40 Balance Sheet 2010 2011 2012 Assets Cash 20 20 20 Account Receivable 102 110 110/740*873.20 129.8 Inventory 76 80 80/740*873.20 94.4 Total Current assets 198 210 244.2 Net Fixed assets 352 410 410/740*873.20 483.8 Total assets 550 620 728 Liabilities and Owners Equity Accounts Payable 62 70 70/740*843.20         79.76 Notes Payable 0 0         43.84 Total Current Liabilities 62 70      123.60 Long Term Debt 280 300      300.00 Common Stock 34 34         34.00 Retained earnings 174 216 216+54.40      270.40 Total Liabilities and Owners Equity 550 620      728.00 External fund needed = 728-684.16 43.84