Munson Communications Company has just reported earnings for the year ended June 30, 2011. Below are the firm’s income statement and balance sheet. The Company had a 55 percent dividend payout ratio for the last 10 years and does not plan to change this policy. Based on internal forecasts, the company expects the demand for its products to grow at a rate of 14 percent for the next year and has projected the sales growth for 2012 to be 14 percent. Assume that equity accounts and long-term debt do not vary directly with sales, but change when retained earnings change or additional capital is issued. Munson Communications Company Balance Sheet as of June 30, 2011 Assets: Liabilities and Stockholders’ Equity: Cash $1,728,639 Accounts payables $4,666,673 Accounts receivables 3,009,421 Notes payables 2,507,094 Inventories 11,492,993 Total current assets $16,231,054 Total current liabilities $7,173,767 Net fixed assets 22,380,636 Long-term debt 13,345,242 Other assets 1,748,906 Common stock 10,165,235 Retained earnings 9,676,351 Total assets $40,360,595 Total liabilities and equity $40,360,595 Munson Communications Company Income Statement for the Fiscal Year Ended June 30, 2011 Revenues $79,722,581 Costs 59,358,499 EBITDA $20,364,082 Depreciation 7,318,750 EBIT $13,045,332 Interest 3,658,477 EBT $9,386,855 Taxes (35%) 3,285,399 Net income $6,101,456 a. What is the firm’s internal growth rate (IGR)? b. What is the firm’s sustainable growth rate (SGR)? c. What is the external financing needed (EFN) to accommodate the expected growth?

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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Munson Communications Company has just reported earnings for the year ended June 30, 2011. Below are the firm’s income statement and balance sheet. The Company had a 55 percent dividend payout ratio for the last 10 years and does not plan to change this policy. Based on internal forecasts, the company expects the demand for its products to grow at a rate of 14 percent for the next year and has projected the sales growth for 2012 to be 14 percent. Assume that equity accounts and long-term debt do not vary directly with sales, but change when retained earnings change or additional capital is issued.

Munson Communications Company Balance Sheet as of June 30, 2011
Assets:	Liabilities and Stockholders’ Equity:
Cash	$1,728,639	Accounts payables	$4,666,673
Accounts receivables	3,009,421	Notes payables	2,507,094
Inventories	11,492,993
Total current assets	$16,231,054	Total current liabilities	$7,173,767

Net fixed assets	22,380,636	Long-term debt	13,345,242
Other assets	1,748,906	Common stock	10,165,235
		Retained earnings	9,676,351
Total assets	$40,360,595	Total liabilities and equity	$40,360,595

Munson Communications Company Income Statement for the Fiscal Year Ended June 30, 2011
Revenues	$79,722,581
Costs	59,358,499
EBITDA	$20,364,082
Depreciation	7,318,750
EBIT	$13,045,332
Interest	3,658,477
EBT	$9,386,855
Taxes (35%)	3,285,399
Net income	$6,101,456

a. What is the firm’s internal growth rate (IGR)?

b. What is the firm’s sustainable growth rate (SGR)?

c. What is the external financing needed (EFN) to accommodate the expected growth?

d. Construct the firm’s 2012 pro forma financial statements below under the assumption that all external financing will be done with long-term debt.

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