Additional funds needed
Morrissey Technologies Inc.'s 2012 financial statements are shown here.
Morrissey Technologies Inc.: Balance Sheet as of December 31, 2012 Cash $180,000 Accounts payable $360,000 Receivables 360,000 Notes payable 56,000 Inventories 720,000 Accrued liabilities 180,000 Total current assets $1,260,000 Total current liabilities $596,000 Long-term debt 100,000 Fixed assets 1,440,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000
Morrissey Technologies Inc.: Income Statement for December 31, 2012 Sales $3,600,000 Operating costs including depreciation 3,279,720 EBIT $320,280 Interest 20,280 EBT $300,000 Taxes (40%) 120,000 Net Income $180,000 Per Share Data: Common stock price $45.00 Earnings per share (EPS) $1.80 Dividends per share (DPS) $1.08
Suppose that in 2013, sales increase by 15% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2012 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 89.5% and increase its total debt-to-assets ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2013 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short-term and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
- Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Round your answers to the nearest cent.
Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2013 2012 2013 Pro Forma Sales $3,600,000 $ Operating costs (includes depreciation) 3,279,720 $ EBIT $320,280 $ Interest expense 20,280 $ EBT $300,000 $ Taxes (40%) 120,000 $ Net Income $180,000 $ Dividends $ $ Addition to RE $ $
Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2013 2012 2013 Pro Forma Cash $180,000 $ Accounts receivable 360,000 $ Inventories 720,000 $ Fixed assets 1,440,000 $ Total assets $2,700,000 $ Payables + accruals $540,000 $ Short-term bank loans 56,000 $ Total current liabilities $596,000 $ Long-term bonds 100,000 $ Total debt $696,000 $ Common stock 1,800,000 $ Retained earnings 204,000 $ Total common equity $2,004,000 $ Total liab. and equity $2,700,000 $
- If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In otherwords, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Round your answer to two decimal places.
%
Additional funds needed
Morrissey Technologies Inc.'s 2012 financial statements are shown here.
| Morrissey Technologies Inc.: Balance Sheet as of December 31, 2012 | ||||
| Cash | $180,000 | Accounts payable | $360,000 | |
| Receivables | 360,000 | Notes payable | 56,000 | |
| Inventories | 720,000 | Accrued liabilities | 180,000 | |
| Total current assets | $1,260,000 | Total current liabilities | $596,000 | |
| Long-term debt | 100,000 | |||
| Fixed assets | 1,440,000 | Common stock | 1,800,000 | |
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 | |
| Morrissey Technologies Inc.: Income Statement for December 31, 2012 | |||
| Sales | $3,600,000 | ||
| Operating costs including depreciation | 3,279,720 | ||
| EBIT | $320,280 | ||
| Interest | 20,280 | ||
| EBT | $300,000 | ||
| Taxes (40%) | 120,000 | ||
| Net Income | $180,000 | ||
| Per Share Data: | |||
| Common stock price | $45.00 | ||
| Earnings per share (EPS) | $1.80 | ||
| Dividends per share (DPS) | $1.08 | ||
Suppose that in 2013, sales increase by 15% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2012 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 89.5% and increase its total debt-to-assets ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2013 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short-term and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
- Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Round your answers to the nearest cent.
Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2013 2012 2013 Pro Forma Sales $3,600,000 $ Operating costs (includes depreciation) 3,279,720 $ EBIT $320,280 $ Interest expense 20,280 $ EBT $300,000 $ Taxes (40%) 120,000 $ Net Income $180,000 $ Dividends $ $ Addition to RE $ $ Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2013 2012 2013 Pro Forma Cash $180,000 $ Accounts receivable 360,000 $ Inventories 720,000 $ Fixed assets 1,440,000 $ Total assets $2,700,000 $ Payables + accruals $540,000 $ Short-term bank loans 56,000 $ Total current liabilities $596,000 $ Long-term bonds 100,000 $ Total debt $696,000 $ Common stock 1,800,000 $ Retained earnings 204,000 $ Total common equity $2,004,000 $ Total liab. and equity $2,700,000 $ - If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In otherwords, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Round your answer to two decimal places.
%
Related questions
The Davidson Corporation's balance sheet and income statement are provided here.
Davidson Corporation: Balance Sheet as of December 31, 2012 (Millions of Dollars)
| Assets | Liabilities and Equity | |||
| Cash and equivalents | $20 | Accounts payable | $100 | |
| Accounts receivable | 580 | Notes payable | 215 | |
| Inventories | 900 | Accruals | 210 | |
| Total current assets | $1,500 | Total current liabilities | $525 | |
| Net plant and equipment | 2,305 | Long-term bonds | 1,500 | |
| Total debt | $2,025 | |||
| Common stock (100 million shares) | 280 | |||
| Retained earnings | 1,500 | |||
| Common equity | $1,780 | |||
| Total assets | $3,805 | Total liabilities and equity | $3,805 |
Davidson Corporation: Income Statement for Year Ending December 31, 2012 (Millions of Dollars)
| Sales | $9,000 |
| Operating costs excluding depreciation and amortization | 6,930 |
| EBITDA | $2,070 |
| Depreciation and amortization | 540 |
| EBIT | $1,530 |
| Interest | 243 |
| EBT | $1,287 |
| Taxes (40%) | 514.8 |
| Net income | $772.2 |
| Common dividends paid | $166.023 |
| Earnings per share | $7.722 |
Enter your answers for parts b-d in millions. For example, an answer of $25,000,000 should be entered as 25.
Construct the statement of stockholders' equity for December 31, 2012. No common stock was issued during 2012. Write out all your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest share or dollar.
| Common Stock | Retained | Total Stockholders' | |||
| Shares | Amount | Earnings | Equity | ||
| Balances, 12/31/11 | $ | $ | $ | ||
| 2012 Net income | $ | ||||
| Cash dividends | $ | ||||
| Addition to RE | $ | ||||
| Balances, 12/31/12 | $ | $ | $ | ||
How much money has been reinvested in the firm over the years? Round your answer to the nearest hundredth of million, if necessary.
$ million
At the present time, how large a check could be written without it bouncing? Round your answer to the nearest hundredth of million, if necessary.
$ million
How much money must be paid to current creditors within the next year? Round your answer to the nearest hundredth of million, if necessary.
$ million
| Joshua & White Technologies: December 31 Balance Sheets | ||||||
| (Thousands of Dollars) | ||||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | $21,000 | $20,000 | ||||
| Short-term investments | 3,759 | 3,240 | ||||
| Accounts Receivable | 52,500 | 48,000 | ||||
| Inventories | 84,000 | 56,000 | ||||
| Total current assets | $161,259 | $127,240 | ||||
| Net fixed assets | 218,400 | 200,000 | ||||
| Total assets | $379,659 | $327,240 | ||||
| Liabilities and equity | ||||||
| Accounts payable | $33,600 | $32,000 | ||||
| Accruals | 12,600 | 12,000 | ||||
| Notes payable | 19,929 | 6,480 | ||||
| Total current liabilities | $66,129 | $50,480 | ||||
| Long-term debt | 67,662 | 58,320 | ||||
| Total liabilities | $133,791 | $108,800 | ||||
| Common stock | 183,793 | 178,440 | ||||
| Retained Earnings | 62,075 | 40,000 | ||||
| Total common equity | $245,868 | $218,440 | ||||
| Total liabilities and equity | $379,659 | $327,240 | ||||
| Joshua & White Technologies December 31 Income Statements | ||||||
| (Thousands of Dollars) | ||||||
| 2010 | 2009 | |||||
| Sales | $420,000 | $400,000 | ||||
| Expenses excluding depr. and amort. | 327,600 | 320,000 | ||||
| EBITDA | $92,400 | $80,000 | ||||
| Depreciation and Amortization | 19,660 | 18,000 | ||||
| EBIT | $72,740 | $62,000 | ||||
| Interest Expense | 5,740 | 4,460 | ||||
| EBT | $67,000 | $57,540 | ||||
| Taxes (40%) | 26,800 | 23,016 | ||||
| Net Income | $40,200 | $34,524 | ||||
| Common dividends | $18,125 | $17,262 | ||||
| Addition to retained earnings | $22,075 | $17,262 | ||||
| Other Data | 2010 | 2009 | ||||
| Year-end Stock Price | $90.00 | $96.00 | ||||
| # of shares (Thousands) | 4,052 | 4,000 | ||||
| Lease payment (Thousands of Dollars) | $20,000 | $20,000 | ||||
| Sinking fund payment (Thousands of Dollars) | $0 | $0 | ||||
| Ratio Analysis | 2010 | 2009 | Industry Avg | |||
| Liquidity Ratios | ||||||
| Current Ratio | 2.38 | 2.52 | 2.58 | |||
| Quick Ratio | 1.17 | 1.41 | 1.53 | |||
| Asset Management Ratios | ||||||
| Inventory Turnover | 1.11 | 1.22 | 7.69 | |||
| Days Sales Outstanding | 45.63 | 43.80 | 47.45 | |||
| Fixed Assets Turnover | 1.92 | 2.00 | 2.04 | |||
| Total Assets Turnover | 3.81 | 5.64 | 1.23 | |||
| Debt Management Ratios | ||||||
| Debt Ratio | 32.1% | |||||
| Times-interest-earned ratio | 15.33 | |||||
| EBITDA coverage ratio | 4.18 | |||||
| Profitability Ratios | ||||||
| Profit Margin | 9.57% | 8.63% | 8.86% | |||
| Basic Earning Power | 19.16% | 18.95% | 19.48% | |||
| Return on Assets | 10.59% | 10.55% | 10.93% | |||
| Return on Equity | 21.87% | 19.35% | 16.10% | |||
| Market Value Ratios | ||||||
| Earnings per share | NA | |||||
| Price-to-earnings ratio | 10.65 | |||||
| Cash flow per share | NA | |||||
| Price-to-cash flow ratio | 7.11 | |||||
| Book Value per share | NA | |||||
| Market-to-book ratio | 1.72 | |||||
| a. Has Joshua & White's liquidity position improved or worsened? Explain. | ||||||
| The position of JW has worsend because there ration has fallen from 1.41 to 1.17 | ||||||
| b. Has Joshua & White's ability to manage its assets improved or worsened? Explain. | ||||||
| c. How has Joshua & White's profitability changed during the last year? | ||||||
| d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009. | ||||||
| ROE = | PM x | TA Turnover x Equity Multiplier | ||||
| 2010 | ||||||
| 2009 | ||||||
| e. Perform a common size analysis. What has happened to the composition | ||||||
| (that is, percentage in each category) of assets and liabilities? | ||||||
| Common Size Balance Sheets | ||||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Liabilities and equity | 2010 | 2009 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Common Size Income Statements | 2010 | 2009 | ||||
| Sales | ||||||
| Expenses excluding depr. and amort. | ||||||
| EBITDA | ||||||
| Depreciation and Amortization | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
| f. Perform a percent change analysis. What does this tell you about the change in profitability | ||||||
| and asset utilization? | ||||||
| Percent Change Balance Sheets | Base | |||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Base | ||||||
| Liabilities and equity | 2010 | 2009 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Base | ||||||
| Percent Change Income Statements | 2010 | 2009 | ||||
| Sales | ||||||
| Expenses excluding depr. and amort. | ||||||
| EBITDA | ||||||
| Depreciation and Amortization | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
