Financial Calculation
| Question 1- The following is the financial statement of Executive Fruit Company for the year ended December 2014. |
| INCOME STATEMENT, 2014 | |||
| (Figures in $ Thousands) | |||
| Revenue | $ | 3,500 | |
| Cost of goods sold | 3,150 | ||
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| EBIT | $ | 350 | |
| Interest | 70 | ||
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| Earnings before taxes | $ | 280 | |
| State and federal tax | 112 | ||
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| Net income | $ | 168 | |
| Dividends | 112 | ||
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| Additions to retained earnings | $ | 56 | |
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| BALANCE SHEET (Year-End, 2014) | |||
| (Figures in $ Thousands) | |||
| Assets | |||
| Net working capital | $ | 350 | |
| Fixed assets | 1,400 | ||
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| Total assets | $ | 1,750 | |
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| Liabilities and shareholders’ equity | |||
| Long-term debt | $ | 700 | |
| Shareholders’ equity | 1,050 | ||
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| Total liabilities and shareholders’ equity | $ | 1,750 | |
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| The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015. |
| First stage pro forma statements: |
| PRO FORMA INCOME STATEMENT, 2015 | |||
| (Figures in $ Thousands) | |||
| Revenue | $ | 3,850 | |
| Cost of goods sold | 3,465 | ||
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| EBIT | $ | 385 | |
| Interest | 70 | ||
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| Earnings before taxes | $ | 315 | |
| State and federal tax | 126 | ||
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| Net income | $ | 189 | |
| Dividends | 126 | ||
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| Additions to retained earnings | $ | 63 | |
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| PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
| (Figures in $ Thousands) | |||
| Assets | |||
| Net working capital | $ | 385 | |
| Fixed assets | 1,540 | ||
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| Total assets | $ | 1,925 | |
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| Liabilities and shareholders’ equity | |||
| Long-term debt | $ | 700 | |
| Shareholders’ equity | 1,113 | ||
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| Total liabilities and shareholders’ equity | $ | 1,813 | |
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| Required external financing | $ | 112 | |
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| Second stage pro forma balance sheet: |
| PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
| (Figures in $ Thousands) | |||
| Assets | |||
| Net working capital | $ | 385 | |
| Fixed assets | 1,540 | ||
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| Total assets | $ | 1,925 | |
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| Liabilities and shareholders’ equity | |||
| Long-term debt | $ | 812 | |
| Shareholders’ equity | 1,113 | ||
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| Total liabilities and shareholders’ equity | $ | 1,925 | |
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| How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.) |
| Dividends fall by $ [removed]. Therefore, the requirement for external financing falls from $ [removed]to $ [removed]. On the other hand, shareholders’ equity will be increased by $ [removed]. |
| The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): |
| Long-term debt | $ |
| Shareholders’ equity | |
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| Total | $ |
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