Bundle: Fundamentals of Financial Management, Concise, Loose-Leaf Version, 9th + LMS Integrated for MindTap Finance, 1 term (6 months) Printed Access Card
9th Edition
ISBN: 9781337148085
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 2016 financial statements are shown here.
Krogh Lumber Balance Sheet as of December 31, 2016 (Thousands of Dollars)
Krogh Lumben Income Statement for December 31, 2016 (Thousands of Dollars)
| Sales | $36,000 |
| Operating costs including depredation | 30,783 |
| Earnings before interest and taxes | $ 5,217 |
| Interest | 1,017 |
| Earnings before taxes | $ 4,200 |
| Taxes (40%) | 1,680 |
| Net income | $ 2,520 |
| Dividends (60%) | $ 1,512 |
| Addition to |
$ 1,008 |
- a. Assume that the company was operating at full capacity in 2016 with regard to all items except fixed assets; fixed assets in 2016 were being utilized to only 75% of capacity. By what percentage could 2017 sales increase over 2016 sales without the need for an increase in fixed assets?
- b. Now suppose 2017 sales increase by 25% over 2016 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 2017 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 longterm 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, and retained earnings?
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EXCESS CAPACITY Krogh Lumber’s 2016 financial statements are shown here.
a. Assume that the company was operating at full capacity in 2016 with regard to all itemsexcept fixed assets; fixed assets in 2016 were being utilized to only 75% of capacity. Bywhat percentage could 2017 sales increase over 2016 sales without the need for anincrease in fixed assets?b. Now suppose 2017 sales increase by 25% over 2016 sales. Assume that Krogh cannotsell any fixed assets. All assets other than fixed assets will grow at the same rate assales; however, after reviewing industry averages, the firm would like to reduce itsoperating costs/sales ratio to 82% and increase its total liabilities-to-assets ratio to42%. The firm will maintain its 60% dividend payout ratio, and it currently has1 million shares outstanding. The firm plans to raise 35% of its 2017 forecastedinterest-bearing debt as notes payable, and it will issue bonds for the remainder. Thefirm forecasts that its before-tax cost of debt (which…
Brick & StoneIncome Statement for the year ended 31 December 2016 Notes $ $Sales 2,500,000Cost of Sales 1 1,100,000Gross Profit 1,400,000ExpensesSalaries & Wages 2 760,000Employer NIS Contribution 2,400Rent and Rates 3 240,000Insurance 50,000Maintenance 120,000Depreciation 4…
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Income tax expense
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Net income
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The P24,000 loss resulted from selling equipment for P270,000 cash. The equipment was purchased at a cost of P750,000. The following balances are reported on Delar Rosa’s comparative balance sheets at December 31.
Dela Rosa Company Company
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2X20
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Chapter 16 Solutions
Bundle: Fundamentals of Financial Management, Concise, Loose-Leaf Version, 9th + LMS Integrated for MindTap Finance, 1 term (6 months) Printed Access Card
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...
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