Chapter 4
Problems 1-33
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
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equire that
Chapter 4
Question 1,2
Input area:
Income statement Balance sheet
Sales $ 23,000 Assets $ 15,800 Debt
Costs 16,700 Equity
Net income $ 6,300 Total $ 15,800 Total
Sales increase 15%
Payout rate 50%
Output area:
Pro forma income statement Pro forma balance sheet
Sales $ 26,450 Assets $ 18,170 Debt
Costs 19,205 Equity
Net income $ 7,245 Total $ 18,170 Total
Dividends $ 5,655
Pro forma income statement Pro forma balance sheet
Sales $ 26,450.00 Assets $ 18,170 Debt
Costs 19,205.00 Equity
Net income $ 7,245.00 Total $ 18,170 Total
Dividends $ 3,622.50 External financing needed
Add. To RE $ 3,622.50
nce sheet
$ 5,200
10,600
$ 15,800
balance sheet
$ 5,980
12,190
$ 18,170
balance sheet
$ 5,200.00
14,222.50
$ 19,422.50
$ (1,252.50)
Chapter 4
Question 3
Input area:
Income statement Balance sheet
Sales $ 6,300 Assets $ 18,300 Debt
Costs 3,890 Equity
Net income $ 2,410 Total $ 18,300 Total
Next year's sales $ 7,434
Output area:
Percent increase in sales 18.00%
Pro forma income statement Pro forma balance sheet
Sales $ 7,434 Assets $ 21,594 Debt
Costs 4,590 Equity
Net income $ 2,844 Total $ 21,594 Total
External financing $ 450
e sheet
$ 12,400
5,900
$ 18,300
$ 12,400
8,744
$ 21,144
Chapter 4
Question 4
Input area:
Sales $ 19,500 Assets $ 98,000
Costs 15,000
Taxable income $ 4,500 Total $ 98,000
Taxes 1,800
Net income $ 2,700
Next year's sales $ 21,840
Dividend paid $ 1,400
Tax rate 40%
Output area:
Percent increase in sales 12%
Pro forma income statement Pro forma balance sheet
Sales $ 21,840.00 Assets $ 109,760.00
Costs 16,800.00
Taxable income $ 5,040.00 Total $ 109,760.00
Taxes (40%) 2,016.00
Net income $ 3,024.00
Dividends $ 1,568.00
Add. To RE $ 1,456.00
External financing $ 10,304.00
Debt $ 52,500
Equity 45,500
Total $ 98,000
Debt $ 52,500.00
Equity 46,956.00
Total $ 99,456.00
Chapter 4
Question 5
Input area:
Sales $ 4,200 Current assets $ 3,600
Costs 3,300 Fixed assets 7,900
Taxable income $ 900
Taxes 306 Total assets $ 11,500
Net income $ 594
Sales increase 15%
Payout ratio 40%
Tax rate 34%
Output area:
Pro forma income statement Pro forma balance sheet
Sales $ 4,830.00 Current assets $ 4,140.00
Costs 3,795.00 Fixed assets 9,085.00
Taxable income $ 1,035.00
Taxes (34%) 351.90 Total $ 13,225.00
Net income $ 683.10
Dividends $ 273.24
Add. To RE $ 409.86
External financing $ 1,000.14
Current liabilities $ 2,100
Long-term debt 3,650
Equity 5,750
Total $ 11,500
lance sheet
Current liabilities $ 2,415.00
Long-term debt 3,650.00
Equity 6,159.86
Total $ 12,224.86
Chapter 4
Question 6,7
Input area:
Sales $ 13,250 Current assets $ 10,400
Costs 9,480 Fixed assets 28,750
Taxable income $ 3,770 Total $ 39,150
Taxes 1,508
Net income $ 2,262
Payout ratio 30%
Tax rate 40%
Output area:
Income statement Balance sheet
Sales $ 13,250.00 Current assets $ 10,400
Costs 9,480.00 Fixed assets 28,750
Taxable income $ 3,770.00
Taxes 1,508.00 Total $ 39,150
Net income $ 2,262.00
Dividends $ 678.60
Add. To RE 1,583.40
Return on assets 5.78%
Retention ratio 70%
Internal growth rate 4.21%
Return on equity 10.45%
Sustainable growth rate 7.89%
Debt $ 17,500
Equity 21,650
Total $ 39,150
lance sheet
Debt $ 17,500
Equity 21,650
Total $ 39,150
Chapter 4
Question 8
Input area:
Sales $ 42,000 Current assets 21,000
Costs 28,500 Fixed assets 86,000
Taxable income $ 13,500 Total $ 107,000
Taxes 4,590
Net income $ 8,910
Payout ratio 30%
Tax rate 34%
Output area:
Return on equity 15.91%
Retention ratio 70%
Sustainable growth rate 12.53%
Maximum increase in sales $ 5,264.03
Debt 51,000
Equity 56,000
Total $ 107,000
Chapter 4
Question 9
Input area:
Sales $ 38,000
Costs 18,400
Taxable income $ 19,600
Taxes 6,664
Net income $ 12,936
Dividends $ 5,200
Addition to RE $ 7,736
Tax rate 34%
Increase in sales 20%
Output area:
Pro forma income statement
Sales $ 45,600.00
Costs 22,080.00
Taxable income $ 23,520.00
Taxes 7,996.80
Net income $ 15,523.20
Dividends $ 6,240.00
Add. To RE $ 9,283.20
Payout ratio 40.20%
Chapter 4
Question 10
Input area:
Sales $ 38,000
Current assets Current liabilities
Cash $ 3,050 Accounts payable
Accounts Receivable 6,900 Notes payable
Inventory 7,600 Total
Total $ 17,550 Long-term debt
Fixed assets
Net plant and equipment $ 34,500 Owners' equity
Common stock
Retained earnings
Total
Total liabilities and
Total assets $ 52,050 Owners' equity
Output area:
HEIR JORDAN CORPORATION
Balance Sheet
Assets Liabilities and Owners' equit
Current assets Current liabilities
Cash $ 3,050 8.03% Accounts payable
Accounts Receivable 6,900 18.16% Notes payable
Inventory 7,600 20.00% Total
Total $ 17,550 46.18% Long-term debt
Fixed assets
Net plant and equipment $ 34,500 90.79% Owners' equity
Common stock
Retained earnings
Total
Total liabilities and
Total assets $ 52,050 136.97% Owners' equity
nt liabilities
nts payable $ 1,300
6,800
$ 8,100
$ 25,000
mmon stock $ 15,000
ained earnings 3,950
$ 18,950
abilities and
Owners' equity $ 52,050
RATION
Liabilities and Owners' equity
nt liabilities
nts payable $ 1,300 3.42%
6,800 n/a
$ 8,100 n/a
$ 25,000 n/a
mmon stock $ 15,000 n/a
ained earnings 3,950 n/a
$ 18,950 n/a
abilities and
Owners' equity $ 52,050
Chapter 4
Question 11
Input area:
Sales $ 38,000
Costs 18,400
Cash 3,050
Accounts receivable 6,900
Inventory 7,600
Net plant and equipment 34,500
Accounts payable 1,300
Notes payable 6,800
Long-term debt 25,000
Common stock 15,000
Retained earnings 3,950
Dividends 6,240
Net income 15,523
Increase in sales 15%
Tax rate 34%
Output area:
Payout ratio 0.40
Pro forma income statement
Sales $ 43,700.00
Costs 21,160.00
Taxable income $ 22,540.00
Taxes 7,663.60
Net income $ 14,876.40
Dividends $ 5,980.00
Add. To RE 8,896.40
HEIR JORDAN CORPORATION
Balance Sheet
Assets Liabilities and Owners' equity
Current assets Current liabilities
Cash $ 3,507.50 Accounts payable
Accounts Receivable 7,935.00 Notes payable
Inventory 8,740.00 Total
Total $ 20,182.50 Long-term debt
Fixed assets
Net plant and equipment $ 39,675.00 Owners' equity
Common stock
Retained earnings
Total
Total liabilities and
Total assets $ 59,857.50 Owners' equity
External financing needed $ (1,283.90)
s and Owners' equity
$ 1,495.00
6,800.00
8,295.00
$ 25,000.00
$ 15,000.00
12,846.40
$ 27,846.40
$ 61,141.40
Chapter 4
Question 12
Input area:
Return on assets 8%
Payout ratio 20%
Output area:
Plowback ratio 80%
Internal growth rate 6.84%
Chapter 4
Question 13
Input area:
Return on equity 15%
Payout ratio 25%
Output area:
Plowback ratio 75%
Sustainable growth rate 12.68%
Chapter 4
Question 14
Input area:
Profit margin 8.2%
Capital intensity ratio 0.75
Debt-equity ratio 0.40
Net income $ 43,000
Dividends $ 12,000
Output area:
Return on equity 15.31%
Plowback ratio 72.09%
Sustainable growth rate 12.40%
Chapter 4
Question 15
Input area:
Total asset turnover 2.50
Profit margin 7.8%
Equity multiplier 1.80
Payout ratio 60%
Output area:
Return on equity 35.10%
Plowback ratio 40.00%
Sustainable growth rate 16.33%
Chapter 4
Question 16,17
Input area:
Percent of capacity 95%
Current sales $ 550,000
### Fixed assets $ 440,000
### Projected sales $ 630,000
Output area:
Full capacity $ 578,947
Maximum sales growth 5.26%
Fixed assets / Full capacity sales 0.7600
Total fixed assets $ 478,800
New fixed assets $ 38,800.00
Chapter 4
Question 18
Input area:
Sustainable growth rate 12%
Debt/equity ratio 1.20
Payout ratio 30%
Assets/sales 0.75
Output area:
Plowback ratio 70%
Return on equity 15.31%
Profit margin 5.22%
Chapter 4
Question 19
Input area:
Sustainable growth rate 11.50%
Payout ratio 30.0%
Assets/sales ratio 0.60
Profit margin 6.20%
Output area:
Plowback ratio 70%
Return on equity 14.73%
Equity multiplier 1.43
Debt/equity ratio 0.43
Chapter 4
Question 20
Input area:
Internal growth rate 7%
Payout ratio 25%
Profit margin 5%
Output area:
Plowback ratio 75%
Return on assets 8.72%
Total asset turnover 1.74
Chapter 4
Question 21
Input area:
Profit margin 4.8%
Total asset turnover 1.25
Total debt ratio 0.65
Payout ratio 30%
Output area:
Debt/equity 1.86
Return on assets 6.00%
Plowback ratio 0.7
Return on equity 17.14%
Sustainable growth rate 13.64%
Chapter 4
Question 22
Input area:
Sales $ 195,000
Net income $ 17,500
Dividends $ 9,300
Debt $ 86,000
Equity $ 58,000
Output area:
Plowback ratio 0.4686
Return on equity 30.17%
Sustainable growth rate 16.47%
New total assets $ 167,710.84
Debt/equity 1.48
New total debt $ 100,160.64
Additional borrowing $ 14,160.64
Return on assets 0.1215
Internal growth rate 6.04%
Chapter 4
Question 23
Input area:
Beginning equity $ 135,000
Ending TA $ 250,000
Net income $ 19,000
Dividends $ 2,500
Output area:
Ending equity $ 151,500
Plowback ratio 86.84%
ROE (beg. equity) 14.07%
ROE (ending equity) 12.54%
Exact SGR 12.22%
ROE x b (using beg. 12.22%
Equity for ROE)
ROE x b (using end 10.89%
Equity for ROE)
Chapter 4
Question 24
Input area:
Beginning equity $ 135,000
Ending TA $ 250,000
Net income $ 19,000
Dividends $ 2,500
Output area:
Plowback ratio 86.84%
ROA (ending TA) 7.60%
IGR 7.07%
ROA x b (end ROA) 6.60%
Beginning TA $ 233,500
Beginning ROA 8.14%
ROA (beginning TA) 7.07%
Chapter 4
Questions 25-29
Input area:
For problems 26, 27, and 29, change the percent sales growth rate in the input area belo
Sales $ 929,000
Costs 723,000 Current assets
Other expenses 19,000 Cash
EBIT $ 187,000 Accounts receivable
Interest expense 14,000 Inventory
Taxable income $ 173,000 Total
Taxes 60,550 Fixed assets
Net income $ 112,450 Net plant and
equipment
Dividends $ 33,735
Add. to retained earnings 78,715
Sales increase 35.00%
Operating capacity 80% Total assets
Tax rate 35%
Output area:
Dividend payout ratio 0.30
2009 Pro Forma Income Statement
Sales $ 1,254,150 Current assets
Costs 976,050 Cash
Other expenses 25,650 Accounts receivable
EBIT $ 252,450 Inventory
Interest expense 14,000 Total
Taxable income $ 238,450 Fixed assets
Taxes 83,458 Net plant and
Net income $ 154,993 equipment
Dividends $ 46,498
Add. To RE 108,495
Total assets
External financing $ 65,770
#25 and #26
Full capacity sales $ 1,161,250
Fixed assets required at full capacity 0.35565
Total fixed assets $ 446,040
External financing needed $ (45,740)
#27 and #29
2006 Debt/equity ratio 0.75255
Debt-asset ratio 0.42940
Equity-asset ratio 0.57060
New total debt $ 324,648
New LTD $ 57,848
Excess debt raised $ (7,922)
EFN $ 65,770
Current assets
Cash
Accounts receivable
Inventory
Total
Fixed assets
Net plant and
equipment
Total assets
Current assets
Cash
Excess cash
Accounts receivable
Inventory
Total
Fixed assets
Net plant and
equipment
Total assets
Total debt at current D/A $ 328,050.00
Total equity at current D/A $ 435,915.00
Debt repurchase $ (3,401.74)
Equity repurchase $ (4,520.25)
Current assets
Cash
Accounts receivable
Inventory
Total
Fixed assets
Net plant and
equipment
Total assets
#28
Plowback ratio 0.70
ROA 19.87%
Internal growth rate 16.16%
#29
Plowback ratio 0.70
ROE 34.83%
Internal growth rate 32.24%
rowth rate in the input area below.
Assets Liabilities and owners' equity
Current liabilities
$ 25,300 Accounts payable $ 68,000
ts receivable 40,700 Notes payable 17,000
86,900 Total $ 85,000
$ 152,900 Long-term debt $ 158,000
Owners' equity
$ 413,000 Common stock and
paid-in surplus $ 140,000
Retained earnings 182,900
Total $ 322,900
Total liabilities and
$ 565,900 owners' equity $ 565,900
Assets Liabilities and owners' equity
Current liabilities
$ 34,155 Accounts payable $ 91,800
ts receivable 54,945 Notes payable 17,000
117,315 Total $ 108,800
$ 206,415 Long-term debt 158,000
Owners' equity
557,550 Common stock and
paid-in surplus $ 140,000
Retained earnings 291,395
Total $ 431,395
Total liabilities and
$ 763,965 owners' equity $ 698,195
Assets Liabilities and owners' equity
Current liabilities
$ 34,155 Accounts payable $ 91,800
ts receivable 54,945 Notes payable 17,000
117,315 Total $ 108,800
$ 206,415 Long-term debt $ 215,848
Owners' equity
$ 557,550 Common stock and
paid-in surplus $ 140,000
Retained earnings 291,395
Total $ 431,395
Total liabilities and
$ 763,965 owners' equity $ 756,043
Assets Liabilities and owners' equity
Current liabilities
$ 34,155 Accounts payable $ 91,800
(7,922) Notes payable 17,000
ts receivable 54,945 Total $ 108,800
117,315 Long-term debt 215,848
$ 198,493
Owners' equity
Common stock and
557,550 paid-in surplus $ 140,000
Retained earnings 291,395
Total $ 431,395
Total liabilities and
$ 756,043 owners' equity $ 756,043
Assets Liabilities and owners' equity
Current liabilities
$ 34,155 Accounts payable $ 91,800
ts receivable 54,945 Notes payable 17,000
117,315 Total $ 108,800
$ 206,415 Long-term debt 219,250
Owners' equity
557,550 Common stock and
paid-in surplus $ 140,000
Retained earnings 295,915
Total $ 435,915
Total liabilities and
$ 763,965 owners' equity $ 763,965
Chapter 4
Question 30
Input area:
Growth rate 12%
Debt-equity ratio 0.30
Profit margin 6.70%
Total assets to sales 1.35
Output area:
Return on equity 6.45%
Plowback ratio 1.66
Payout ratio (0.66)
This is a negative dividend payout ratio of 66% which is impossible;
the growth rate is not consistent with the other constraints. The lowest possible
payout ratio is 0, which corresponds to b = 1, or total earnings retention.
Maximum sustainable g 6.90%
h is impossible;
est possible
Chapter 4
Question 31,32
Output area:
External financing needed = Increase in assets - Addition to retained earnings
Increase in assets = A X g
Addition to retained earnings = (Net income X b) (1 + g)
Net income = PM(S)
Thus, EFN = A(g) - PM(S)b(1 + g)
= A(g) - PM(S)b - [PM(S)b]g
= -PM(S)b + [A-PM(S)b]g
Internal growth rate:
EFN = 0 = -PM(S)b + [A - PM(S)b]g
g = [PM(S)b] / [A - PM(S)b]
Since ROA = NI / A = PM(S) / A, dividing numerator and denominator by A gives
g = [(PM(S)b) / A] / [(A - PM(S)b) / A]
= b(ROA) / [1 - b(ROA)]
