Reference no: EM1312674

Compute the necessary requirements on the basis of details

Cranberry Corporation: Income Statement ($ in millions)

Sales	$300
Costs	250
EBT	$50
Taxes (34%)	17
Net income	$33
Retained earnings	$22
Dividends	$11

Cranberry Corporation: Balance Sheet ($ in millions)

Cash	$5	Accounts payable	$ 40
Accounts receivables	40	Notes payable	30
Inventory	65	Current liabilities	$70
Current assets	$110	Long-term debt	155
Net plant & equip.	290	Common stock	75
		Retained earnings	100
Total assets	$400	Total liab. & equity	$400

REQUIRED:

a. Assuming a constant profit margin, what will Cranberry Corporation's net income be if sales increase by 10%?

b. What is Cranberry Corporation's addition to retained earnings with a 10% increase in sales? Assume the dividend payout ratio and profit margin remains fixed.

c. Assume Cranberry Corporation is operating at full capacity. What will total assets be if sales increase by 10%? Assume costs, current liabilities, and current assets vary directly with sales and that the dividend payout ratio remains unchanged.

d. Assume Cranberry Corporation is using its fixed assets at 90% capacity. Assume costs, current liabilities, and current assets vary directly with sales, and that the dividend payout ratio remains unchanged. If sales increase by 20%, what will total fixed assets be?

e. How much external financing is needed for a 20% increase in sales if the Corporation is currently operating at full capacity? Assume assets and costs vary directly with sales but no current liabilities increase with sales and that the dividend payout ratio remains fixed.