Consider the following simplified financial statements for the Wesney Corporation (assuming no income taxes): Income Statement Sales Costs $ 30,900 23,060 Net income $7,840 Total Assets Sales Costs Net income Pro forma income statement Balance Sheet $ Debt 25,450 Equity The plug variable is $ 25,450 The company has predicted a sales increase of 12 percent. It has predicted that every item on the balance sheet will increase by 12 percent as well. Assets Create the pro forma statements and reconcile them. (Input all answers as positive values. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Total Total Assets $ 6,950 18,500 $ 25,450 in the amount of What is the plug variable? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Pro forma balance sheet Debt Equity Total Debt and Equity

Consider the following simplified financial statements for the Wesney Corporation (assuming no income taxes): Income Statement Sales Costs $ 30,900 23,060 Net income $7,840 Total Assets Sales Costs Net income Pro forma income statement Balance Sheet $ Debt 25,450 Equity The plug variable is $ 25,450 The company has predicted a sales increase of 12 percent. It has predicted that every item on the balance sheet will increase by 12 percent as well. Assets Create the pro forma statements and reconcile them. (Input all answers as positive values. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Total Total Assets $ 6,950 18,500 $ 25,450 in the amount of What is the plug variable? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Pro forma balance sheet Debt Equity Total Debt and Equity

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 9P

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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?
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Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 28,000 Assets $ 9,700 Debt $ 4,600 Costs 13,400 Equity 5,100 Net income $ 14,600 Total $ 9,700 Total $ 9,700 The company has predicted a sales increase of 9 percent. It has predicted that every item on the balance sheet will increase by 9 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here? Multiple Choice $15,455 $15,437 $24,241 $15,441 $15,432