Reference no: EM132573940
Question - The following financial statements were prepared by Fraol Company as of December 31, 2004:
Balance Sheet ($ in Millions)
Assets 2004
Liabilities and Owners' Equity 2004
Current Assets Current Liabilities
Cash 200
Accounts Payable 400
Accounts Receivable 400
Notes Payable 400
Inventory 600
Total Current Liabilities 800
Total Current Assets 1200
Long-Term Liabilities
Long-Term Debt 500
Fixed Assets
Total Long-Term Liabilities 500
Net Fixed Assets 800
Owners' Equity
Common Stock ($1 Par) 300
Retained Earnings 400
Total Owners' Equity 700
Total Assets 2000
Total Liab. and Owners' Equity 2000
Income Statement ($ in Millions) 2004
Sales 1200
Cost of Goods Sold & other expenses 900
Taxable Income 300
Income Taxes 90
Net Income 210
Dividends 73.5
Addition to Retained Earnings 136.5
Additional Information -
1. The company plans to maintain dividend payout ratio of 2004
2. Sales are expected to increase by 30% during next year (2005).
3. All assets are proportional to sales. Accounts Payable is the only spontaneous liability.
4. All expenses are proportional to sales
The firm has been operating at full capacity.
Any external capital required will be raised as follows: Short-term notes payable, 20%; bonds, 35%; common stock, 45%.
Required -
a. Using Percentage of sales model,
1. Determine external capital required, if any
2. Prepare pro forma financial statements for 2005
b. Using Additional Funds Needed model, determine external capital required
c. At what percent increase in sales the firm does not require external capital?