Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 16, Problem 14P
EXCESS CAPACITY Krogh Lumber’s 2019 financial statements are shown here.
Krogh Lumber: Balance Sheet as of December 31, 2019 (thousands of dollars)
Krogh Lumber: Income Statement for December 31, 2019 (thousands of dollars)
- a. Assume that the company was operating at full capacity in 2019 with regard to all items except fixed assets; fixed assets in 2019 were being utilized to only 75% of capacity. By what percentage could 2020 sales increase over 2019 sales without the need for an increase in fixed assets?
- b. Now suppose 2020 sales increase by 25% over 2019 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 82% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2020 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm
forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 11%. Any stock issuances or repurchases will be made at the firm’s current stock price of $40. Develop Krogh’s projected financial statements like those shown in Table 16.2. What are the balances of notes payable, bonds, common stock, andretained earnings ?
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Krogh Lumber's 2019 financial statements are shown here.
a. Assume that the company was operating at full capacity in 2019 with regard to all items except fixed assets; fixed assets in 2019 were being utilized to only 75% of capacity. By what percentage could 2020 sales increase over 2019 sales without the need for an increase in fixed assets?b. Now suppose 2020 sales increase by 25% over 2019 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 82% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2020 forecasted inter est-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt…
Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in
2020
will be
$1.59
million. Interest expense is expected to remain unchanged at
$36,000,
and the firm plans to pay
$66,000
in cash dividends during
2020.
Metroline Manufacturing's income statement for the year ended December 31,
2019,
is given
LOADING...
,
along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.
a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31,
2020.
b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31,
2020.
c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of
2020
income? Explain why.
Love Corp. is preparing the interim financial statements for the quarter ended March 31, 2020. Sales during the quarter is P5,000,000. The variable expense is 20% based on sales. The fixed expense of P3,000,000 included P1,500,000 an advertisement expense for one-year (incurred evenly in the year) and depreciation expense of P600,000 for 2020 for an equipment that was available for use on March 1, 2020. How much is the total expense reported as of March 31, 2020?
Chapter 16 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 16 - Prob. 1QCh. 16 - Assume that an average firm in the office supply...Ch. 16 - Would you agree that computerized corporate...Ch. 16 - Certain liability and net worth items generally...Ch. 16 - Suppose a firm makes the following policy changes....Ch. 16 - AFN EQUATION Carlsbad Corporations sales are...Ch. 16 - AFN EQUATION Refer to Problem 16-1. What...Ch. 16 - AFN EQUATION Refer to Problem 16-1 and assume that...Ch. 16 - PRO FORMA INCOME STATEMENT Austin Grocers recently...Ch. 16 - EXCESS CAPACITY Williamson Industries has 7...
Ch. 16 - Prob. 6PCh. 16 - PRO FORMA INCOME STATEMENT At the end of last...Ch. 16 - LONG-TERM FINANCING NEEDED At year-end 2019, total...Ch. 16 - SALES INCREASE Paladin Furnishings generated 4...Ch. 16 - REGRESSION AND RECEIVABLES Edwards Industries has...Ch. 16 - REGRESSION AND INVENTORIES Charlies Cycles Inc....Ch. 16 - Prob. 12PCh. 16 - ADDITIONAL FUNDS NEEDED Morrissey Technologies...Ch. 16 - EXCESS CAPACITY Krogh Lumbers 2019 financial...Ch. 16 - Prob. 1TCLCh. 16 - FORECASTING THE FUTURE PERFORMANCE OF ABERCROMBIE ...
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