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Category > Accounting Posted 07 Jun 2017 My Price 4.00

Krogh Lumber: Balance Sheet as of December 31, 2008

16-14      EXCESS CAPACITY Krogh Lumber’s 2008 financial statements are shown here.

 

Krogh Lumber: Balance Sheet as of December 31, 2008 (Thousands of  Dollars)

 

Cash

$  1,800

Accounts payable

$  7,200

Receivables

10,800

Notes payable

3,472

Inventories

  12,600

Accrued liabilities

     2,520

Total current assets

$25,200

Total current liabilities

$13,192

 

 

Mortgage bonds

5,000

Net fixed assets

21,600

Common stock

2,000

 

 

Retained earnings

  26,608

Total assets

$46,800

Total liabilities and equity

$46,800

 

Krogh Lumber: Income Statement for December 31, 2008 (Thousands of Dollars)

 

Sales

$36,000

Operating costs including depreciation

  30,783

Earnings before interest and taxes

$  5,217

Interest

    1,017

Earnings before taxes

$  4,200

Taxes (40%)

    1,680

Net income

$  2,520

Dividends (60%)

$  1,512

Addition to retained earnings

$  1,008

 

a.        Assume that the company was operating at full capacity in 2008 with regard to all items except fixed assets; fixed assets in 2008 were being utilized to only 75% of capacity. By what percentage could 2009 sales increase over 2008 sales without the need for an increase in fixed assets?

b.       Now suppose 2009 sales increase by 25% over 2008 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its Operating costs/Sales ratio to 82% and increase its debt ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2009 total debt as notes payable, and it will issue bonds for the remainder. Its before-tax cost of debt is 11%. Any stock issuances or repurchases will be made at the firm’s current stock price of $40. Develop the projected financial statements as shown in Table 16-2. What are the balances of notes payable, bonds, common stock, and retained earnings?

Answers

Alpha Geek
(8)
Status NEW Posted 07 Jun 2017 09:06 AM My Price 4.00

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file 1496829363-Answer.docx preview (34 words )
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