Answered: Garlington Technologies Inc.'s 2019…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter11: Investment Planning

Section: Chapter Questions

Problem 7FPE: Using the Value Line Investment Survey report in Exhibit 11.5, find the following information for...

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I need some explanation of a problem.

I ended up with the right answer but I'm not quite sure how I did.

Here is the question:

Garlington Technologies Inc.'s 2019 financial statements are shown here. Suppose that in 2020 sales increase to $4.4 million and that 2020 dividends will increase to $200,000. Forecasting the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 12%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income.

Answer $98,000

Income statement for December 31, 2019
Sales	$4,000,000
Operating costs	3,200,000
EBIT	$800,000
Interest	120,000
Pre-tax earnings	$680,000
Taxes (25%)	170,000
Net income	$510,000
Dividends	$190,000

Balance Sheets as of December 31, 2019

Cash	$160,000	Accounts payable	$360,000
Receivables	360,000	Line of credit	0
Inventories	720,000	Accruals	200,000
Total CA	$1,240,000	Total CL	$560,000
Fixed assets	4,000,000	Long term bonds	$1,000,000
		Common Stock	$1,100,000
		RE	$2,580,000
Total assets	$5,240,000	Total L&E	$5,240,000