Consider the following recent financials for XYZ Corporation: Income Statement B
ID: 2604336 • Letter: C
Question
Consider the following recent financials for XYZ Corporation:
Income Statement
Balance Sheet
Sales
63,252
Assets
122,852
Debt
28,164
Costs
37,951
Equity
94,688
EBIT
25,301
Taxes @ 38%
9,614
Total
122,852
Total
122,852
Net Income
15,687
Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,918 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to grow by 20%.
What is the pro-forma value for equity? (Round answer to 2 decimal places. Do not round intermediate calculations).
What is the external financing needed using the pro-forma approach? (Round answer to 2 decimal places. Do not round intermediate calculations).
What is the internal growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).
What is the sustainable growth rate? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).
Income Statement
Balance Sheet
Sales
63,252
Assets
122,852
Debt
28,164
Costs
37,951
Equity
94,688
EBIT
25,301
Taxes @ 38%
9,614
Total
122,852
Total
122,852
Net Income
15,687
Explanation / Answer
Proforma value of equity = $110,011
External financing required = $9,076 ($37,240 - $28,164)
Internal growth rate = 11.61%
Sustainable growht rate = 3.52%
Workings:
Sales will increase by 20%. Costs are 60% of sales and assets are 194% of sales. Hence we take these percentages for the proforma workings. The tax rate will be same.
Net income 18824 Dividend (18.60%) 3501 Net income retained 15323 Beginning equity 94688 Ending equity 110011