Reference no: EM132653468

Balance Sheet as of December 31, 2014 (Thousands of dollars)

Cash $1,800

Accounts payable $7,200

Receivables $10,800

Notes payable $3,472

Inventories $12,600

Accruals $2,520

Total current assets $25,200

Total current liabilities $13,192

Net fixed assets $21,600

Mortgage bonds $5,000

Common stock $2,000

Retained earnings $26,608

Total assets $46,800

Total liabilities & equity $46,800

Income Statement for 2014 (Thousands of dollars)

Revenues $36,000

Operating costs $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

Question a. Assume that the company was operating at full capacity in 2014 with regard to all items except fixed assets (operating rooms and support space); fixed assets in 2014 were utilized to only 75 percent of capacity. By what percentage could 2015 revenues increase over 2014 revenues without the need for an increase in fixed assets?

Question b. Now suppose 2015 revenues increase by 25 percent over 2014 revenues. Use the constant growth method to develop a pro forma balance sheet and income statement as in Exhibit 14.4. Assume that Gainesville cannot sell any fixed assets and that Gainesville cannot sell any fixed assets and that any financing required is borrowed as notes payable at an interest rate of 12 percent.