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Use the below information to answer the following question Income Statement For the Year Sales $28400 Cost of goods sold 21200 Depreciation 2700 Earnings before interest and taxes

Use the below information to answer the following question.

Income Statement

 

For the Year

 

  Sales

$28,400

  Cost of goods sold

21,200

  Depreciation

2,700

 
 

  Earnings before interest and taxes

$ 4,500

  Interest paid

850

 
 

  Taxable income

$ 3,650

  Taxes

1,400

 
 

  Net income

$ 2,250

 
 
 

Dividends $900

 

Balance Sheet

 

End-of-Year

 

  Cash

$   550

  Accounts receivable

2,450

  Inventory

4,700

 
 

  Total current assets

$ 7,700

  Net fixed assets

16,900

 
 

  Total assets

$24,600

 
 
 

  Accounts payable

$ 2,700

  Long-term debt

9,800

  Common stock ($1 par value)

8,000

  Retained earnings

4,100

 
 

  Total Liab. & Equity

$24,600

 
 
 

The firm does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm's maximum rate of growth?

 

A.

5.81 percent

B.

6.18 percent

C.

5.49 percent

D.

6.03 percent

E.

5.97 percent

This firm is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent?

 

A.

–$323

B.

–$467

C.

$0

D.

This firm is currently operating at 84 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent?

 

A.

–$810

B.

–$912

C.

–$642

D.

$264

 

E.

$358

$108

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May 21 2020 View more View Less

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