FUND. OF FINANCIAL MGMT CONCISE (LL)
9th Edition
ISBN: 9781337539319
Author: Brigham
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 16, Problem 14P
EXCESS CAPACITY Krogh Lumber’s 2016 financial statements are shown here.
Krogh Lumber
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 retained earnings | $ 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?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Income statement for 2016
(in $)
Sales
2016
360,000
Costs (incl. depr.) 252,000
EBIT
108,000
Interest
25,000
Taxes (28%)
23,240
Net income
59,760
Sales are expected to increase by 10% in 2017, while costs including depreciation are expected to reach 60%
of sales. Interest expenses and the average tax rate are expected to stay constant
Use the following information from Eiffel Company’s financial statements.
2018 IncomeStatement
BalanceSheets
Sales
$309,000
Cost of Goods Sold
(145,000)
Operating Expenses, other than Depreciation Expense
(27,000)
Depreciation expense
(16,000)
Gain on Sale of Plant Assets
16,000
Net Income
$137,000
Dec. 31,2018
Accounts Receivable
$45,300
Inventory
1,600
Accounts Payable
22,500
Accured Liabilities
900
Dec. 31, 2017
Accounts Receivable
$22,250
Inventory
1,800
Accounts Payable
22,250
Accured Liabilities
1,150
Prepare the operating activities section of the statement of cash flows (indirect method) for the year 2018. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.
Eiffel Company
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2018
Operating…
Use the following information from Eiffel Company's financial statements.
2018 Income
Balance
Statement
Sheets
Sales
$309,000
Cost of Goods Sold
(145,000)
Operating Expenses, other than
Depreciation Expense
(27,000)
Depreciation expense
(15,000)
Gain on Sale of Plant Assets
18,000
Net Income
$140,000
Dec. 31,2018
Accounts Receivable
$47,300
Inventory
1,600
Accounts Payable
24,500
Accured Liabilities
900
Dec. 31, 20O17
Accounts Receivable
$23,250
Inventory
1,800
Accounts Payable
23,250
Accured Liabilities
1,150
Prepare the operating activities section of the statement of cash flows (indirect method) for tlte year 2018. U
cash or cash payments.
Eiffel Company
Chapter 16 Solutions
FUND. OF FINANCIAL MGMT CONCISE (LL)
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 - REGRESSION AND INVENTORIES jasper Furnishings has...Ch. 16 - PRO FORMA INCOME STATEMENT At the end of last...Ch. 16 - LONG-TERM FINANCING NEEDED At year-end 2016, 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 - EXCESS CAPACITY Earleton Manufacturing Company has...Ch. 16 - ADDITIONAL FUNDS NEEDED Morrissey Technologies...Ch. 16 - EXCESS CAPACITY Krogh Lumbers 2016 financial...Ch. 16 - INTEGRATED CASE NEW WORLD CHEMICALS INC. FINANCIAL...Ch. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Forecast Earnings Growth Have analysts made any...Ch. 16 - Prob. 4DQCh. 16 - How has Abercrombies stock performed this year...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- The following condensed income statement of Ranger Corporation is presented for the two years ended December 31, 2016 and 2015: 2016 2015 Net sales $10,000,000 $9,000,000 Cost of sales 6,000,000 6,000,000 Gross profit $ 4,000,000 $3,000,000 Operating expense 2,500,000 2,000,000 Operating income $ 1,500,000 $1,000,000 Gain on sale of a component 900,000 -- $ 2,400,000 $1,000,000 Income tax expense 720,000 300,000 Net income $ 1,680,000 $ 700,000 On January 1, 2016, Ranger entered into an agreement to sell one of its separate operating divisions for $2,000,000. The sale resulted in a gain on disposition of $900,000 on November 12, 2016, and qualifies as a discontinued component. This division's contribution to Ranger's reported income before income taxes for each year was as follows: 2016 $700,000 loss 2015 $400,000 loss Assume an income tax rate of 30%.Refer to Exhibit 5-1. In the preparation of a revised comparative income statement, Ranger should…arrow_forwardPartial Income Statement of ABC Corp. In 2021 Sales revenue $350,200 Cost of goods sold $142,000 Fixed costs $43,000 Selling, general, and administrative expenses $27,800 Depreciation $45,800 Interest expense $0 Tax rate 40% The Net Income for ABC Corp. in 2021 is $___________ (round to the nearest dollar amount)arrow_forwardUse the following selected 2016 balance sheet and income statement information for Home Garden Supply Co. (in millions) to compute asset turnover (AT) to the nearest hundredth of a percent. Net income Gross profit on sales Average total assets Sales Tax rate on operating profit $69,960 $700,400 $360,600 $1,356,504 35% Question 24 options: A) 3.76 B) 5.17 C) 0.27 D) 17.30arrow_forward
- Accounting Josh Cablesource has sales for 2016 of $1,566,777. Information regarding resources for the year are as follows: Resources Supplied $90,000.00 $37,000.00 $125,000.00 $23,000.00 $89,000.00 $435,000.00 $112,000.00 Resources used $67,000.00 $33,000.00 $54,000.00 $20,000.00 $89,000.00 $433,000.00 $100,000.00 Administration Depreciation Energy Training Short term labor Long term labor Marketing Prepare and activity based Income Statement like the one for exercise 10-53. Show me profit and profit percent.arrow_forwarde and Environment of Financial Management The Congo Mining Company Income Statement for Years Ending 12/31/2017 and 12/31/2018 2018 2017 $1,650 $1.300 950 $ 700 $ 45 Sales 750 Cost of goods sold $ 550 Gross profit %24 35 Operating expenses 255 265 Depreciation expense $ 45 Operating profits $ 285 65 $ 380 Interest expense 55 Profit before taxes $ 230 46 76 Taxes (20%) Net income $ 184 $ 304 * 15% of sales are cash sales, with the remaining 85% being credit sales. 4-10. (Evaluating current and proforma profitability) (Financial ratios-investment anal- ysis) The annual sales for Saudi Aramco Corporation were $4.7 million last year. All sales are on credit. The firm's end-of-year balance sheet was as follows: Current assets $ 520,000 Liabilities $1,200,000 Net fixed assets 1.600,000 Owners' equity 920,000 $2.120,000 $2.120.000 The firm's income statement for the year was as follows: Sales $ 4.550,000 Less cost of goods sold (3,560,000) $ 990,000 Gross profit Less operating expenses…arrow_forwardDela Rosa Company Company The income statement for the year ended December 31, 2020, for Dela Rosa Company Company contains the following condensed information. Dela Rosa Company Company Income Statement For the Year Ended December 31, 2X20 Sales revenue P6,583,000 Cost of goods sold P2,810,000 Operating expenses (excluding depreciation) 2,086,000 Depreciation expense 880,000 Loss on disposal of plant assets 24,000 5,800,000 Income before income taxes 783,000 Income tax expense 353,000 Net income P430,000 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 Comparative Balance Sheets 2X20 2X19 Cash P672,000 P130,000 Accounts receivable 775,000 610,000…arrow_forward
- Use the following excerpts from Yardley Company’s financial information. 2018 IncomeStatement BalanceSheets Sales $455,000 Cost of Goods Sold (221,500) Operating Expenses, other than Depreciation Expense (60,600) Depreciation Expense (21,000) Gain on Sale of Plant Assets 23,500 Net Income $175,400 Dec. 31,2018 Cash $323,450 Accounts Receivable 39,750 Inventory 31,000 Accounts Payable 17,550 Accured Liabilities 3,500 Dec. 31, 2017 Cash $133,500 Accounts Receivable 36,500 Inventory 35,000 Accounts Payable 19,550 Accured Liabilities 2,200 Additional Information: Plant assets were sold for $40,000; book value $16,500. Dividends of $23,000 were declared and paid. Prepare a statement of cash flows (indirect method) for the year 2018. Use the minus sign to indicate cash outflows, a…arrow_forwardFinancial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2018 2017 Sales $ 3,900.0 $ 3,000.0 Operating costs excluding depreciation and amortization 2,925.0 2,550.0 EBITDA $ 975.0 $ 450.0 Depreciation and amortization 90.0 69.0 Earnings before interest and taxes (EBIT) $ 885.0 $ 381.0 Interest 86.0 66.0 Earnings before taxes (EBT) $ 799.0 $ 315.0 Taxes (40%) 319.6 126.0 Net income $ 479.4 $ 189.0 Common dividends $ 431.0 $ 151.0 Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2018 2017 Assets Cash and equivalents $ 38.0 $ 30.0 Accounts receivable 432.0 360.0 Inventories 819.0 630.0 Total current assets $ 1,289.0 $ 1,020.0 Net plant and equipment 897.0 690.0 Total assets $ 2,186.0 $ 1,710.0 Liabilities and Equity…arrow_forwardBrick & 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…arrow_forward
- Brick & StoneIncome Statement for the year ended 31 December 2016Notes $ $Sales 2,500,000Cost of Sales 1 1,100,000 Gross Profit 1,400,000ExpensesSalaries & Wages 2 760,000Employer NIS Contribution 2,400 Rent and Rates 3 240,000Insurance 50,000Maintenance 120,000Depreciation 4 55,000Loss on Disposal of Vehicle 5 10,000Telephone 6 35,000Electricity 7 54,000Utilities 70,000Entertainment 8 100,000Donations 9 85,000Provision for Bad Debts 10 80,000Fines and Penalties 11 15,000Drawings 105,000 1,781,400 Net Profit/ (Loss) (381,400)Brick & StoneNotes to the Income Statement1. The Cost of Sales includes goods valuing $250,000 that were purchased for Mr. Stone’s personal use.2. Salaries and Wages include $25,000 per month, and $20,000 per month, paid to Mr. Stone and Mr. Brick respectively.3. $65,000 of the rent relates to the private dwelling of Mr. Brick’s wife.4. As at the 31 December 2021, the business recorded the following assets in its books:Assets Cost Reducing Balance…arrow_forwardQ Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses $80,000; and Taxes = $300,000. Rogue's operating income is equal to (use an integer number without $ sign, such as $1,234,567⇒ 1234567) Question 25 Tiadaarrow_forwardFinancial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2018 Sales $ 1,625.0 $ 2017 1,300.0 Operating costs excluding depreciation and amortization 1,300.0 1,105.0 EBITDA $ 325.0 $ 195.0 Depreciation and amortization 39.0 31.0 Earnings before interest and taxes (EBIT) $ 286.0 $ 164.0 Interest 36.0 29.0 Earnings before taxes (EBT) $ 250.0 $ 135.0 Taxes (40%) 100.0 54.0 Net income $ 150.0 $ 81.0 Common dividends $ 135.0 $ 65.0 Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2018 Assets Cash and equivalents $ 23.0 $ 2017 18.0 Accounts receivable 164.0 143.0 Inventories 343.0 312.0 Total current assets $ 530.0 $ 473.0 Net plant and equipment 390.0 312.0 Total assets $ 920.0 $ 785.0 Liabilities and Equity…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781305635937Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Financial Projections for Startups Basic Walkthrough; Author: Mike Lingle;https://www.youtube.com/watch?v=7avegQF4dxI;License: Standard youtube license