MINDTAP hapter 9EOC PROBLEMS GRADED 96 Additional Funds Need

MINDTAP hapter 9-EOC PROBLEMS- GRADED 9-6: Additional Funds Needed (AFN) Equation Method Problem 9-9 Financing Deficit Garlington Technologies Inc.\'s 2015 financial statements are shown below Balance Sheet as of December 31, 2015 Cash $ 180,000 Accounts payable 360,000 Notes payable 720,000 Line of credit 360,000 156,000 Inventories Total current assets Fxed assets 180,000 696,000 1,800,000 204,000 $2,700,000 $1,260,000 Accruals 1,440,000 Total current liabilities Common stock Retained earnings Total liabilities and equity Total assets $2,700,000 Income Statement for December 31, 2015 Sales Operating costs EBIT 3,600,000 3,279,720 320,280 18,280 302,000 120,800 181,200 s 108,000 Pre-tax earnings Taxes (40%) Net income Suppose that in 2016 sales increase by 10% over 2015 sales and that 2016 dividends wil increase to S 192,000. Foreca method, Assume the firm operated at full capacity in 2015. Use an interest rate of 12%, and assume that any new debt based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all ne 8 FI ood F FS F6 F7

Solution

2015 Forecast Basis 2016 Sales $3,600,000 1.10*Sales $3,960,000.0 Operating Costs -3279720 3279720/3600000 = 0.911033 ($3,607,692.0) 0.911033 Earnings before interest and taxes $320,280 $352,308.0 Interest -18280 12% of 156000 -18720 Pre-tax earnings $302,000 $333,588.0 Taxes (40%) ($120,800) ($133,435.20) Net Income $181,200 $200,152.8 Dividends $108,000 $192,000.00 Addition to retained earnings $73,200 $8,152.80 Balance Sheet as of December 31, 2015 Forecast Basis % Pro forma after 2015 2016 Sales Additions Pro Forma Financing Financing Cash $180,000 180000/3600000 198000 198000 Receivables 360000 360000/3600000 396000 396000 Inventories 720000 720000/3600000 792000 792000 Total Current assets $1,260,000 1386000 1386000 Net Fixed assets 1440000 1440000/3600000 1728000 1728000 Total Assets $2,700,000 3114000 3114000 Accounts payable $360,000 360000/3600000 432000 432000 Notes payable 156000 156000/3600000 187200 187200 Line of Credit 0 302647 302647 Accruals 180000 180000 180000 Total Current Liabilities $696,000 799200 1101847 Common stock 1800000 1800000 1800000 Retained earnings 204000 204000+8153 212153 212153 Total Liabilities and equity $2,700,000 2811353 3114000 Additional financing needed 3114000-2811353 302647 Additional financing needed is $302647