Instead of 40% of net income to dividends, change to 42%. Also, instead of a 30% tax rate,
Instead of 40% of net income to dividends, change to 42%. Also, instead of a 30% tax rate, change to 28%. New equity must be found due to change of percentages.
MINICASE Cash Flows and Financial Statements at Sunset Boards, Inc. Sunset Boards is a small company that manufactures and sells financial analyst Christina Wolfe to evaluate the performance surfboards in Malibu. Tad Marks, the founder of the company, of the company over the past year. is in charge of the design and sale of the surfboards, but his background is in surfing. not business. As a result, the compa- tax returns, and other records, Christina has assembled the fol- ny's financial records are not well maintained. After rooting through old bank statements, sales receipts, lowing information The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial invest- ment was relatively small, and the company has made surf- Cost of boards only for its own store, the investors haven't required Cash detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up Interest e recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers 2014 2015 $ 196,619 28,372 55,506 12,067 38,668 20,143 244,881 385,724 20,104 22,855 123,607 $ 248,263 42,865 62,738 13,831 50,469 34,091 298,350 470,172 Depreciation xpense Selling and administrative Accounts payable Net fixed assets Tad's expansion plans require a significant investment, Sales which he plans to finance with a combination of additional Accounts receivable funds from outsiders plus some money borrowed from banks. Notes payable Naturally, the new investors and creditors require more orga- Long-term debt nized and detailed financial statements than Tad has previ-Inventory 24,955 140,000 52,057 15,000 ously prepared. At the urging of his investors, Tad has hired New equity