Chapter 4

Problems 1-33

Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green

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To install these, click on the Office button
then "Excel Options," "Add-Ins" and select
"Go." Check "Analyis ToolPak" and
"Solver Add-In," then click "OK."
equire that
Chapter 4
Question 1,2

Input area:

Income statement Balance sheet

Sales $ 23,000 Assets $ 15,800 Debt $ 5,200
Costs 16,700 Equity 10,600
Net income $ 6,300 Total $ 15,800 Total $ 15,800

Sales increase 15%

Payout rate 50%

Output area:

Pro forma income statement Pro forma balance sheet

Sales $ 26,450 Assets $ 18,170 Debt $ 5,980
Costs 19,205 Equity 12,190
Net income $ 7,245 Total $ 18,170 Total $ 18,170

Dividends $ 5,655

Pro forma income statement Pro forma balance sheet

Sales $ 26,450.00 Assets $ 18,170 Debt $ 5,200.00
Costs 19,205.00 Equity 14,222.50
Net income $ 7,245.00 Total $ 18,170 Total $ 19,422.50

Dividends $ 3,622.50 External financing needed $ (1,252.50)

Add. To RE $ 3,622.50
Chapter 4
Question 3

Input area:

Income statement Balance sheet

Sales $ 6,300 Assets $ 18,300 Debt
Costs 3,890 Equity
Net income $ 2,410 Total $ 18,300 Total

Next year's sales $ 7,434

Output area:

Percent increase in sales 18.00%

Pro forma income statement Pro forma balance sheet

Sales $ 7,434 Assets $ 21,594 Debt
Costs 4,590 Equity
Net income $ 2,844 Total $ 21,594 Total

External financing $ 450

e sheet
$ 12,400
5,900
$ 18,300

$ 12,400
8,744
$ 21,144
Chapter 4
Question 4

Input area:

Sales $ 19,500 Assets $ 98,000 Debt

Costs 15,000 Equity
Taxable income $ 4,500 Total $ 98,000 Total
Taxes 1,800
Net income $ 2,700

Next year's sales $ 21,840

Dividend paid $ 1,400

Tax rate 40%

Output area:

Percent increase in sales 12%

Pro forma income statement Pro forma balance sheet

Sales $ 21,840.00 Assets $ 109,760.00 Debt
Costs 16,800.00 Equity
Taxable income $ 5,040.00 Total $ 109,760.00 Total
Taxes (40%) 2,016.00
Net income $ 3,024.00
Dividends $ 1,568.00
Add. To RE $ 1,456.00

External financing $ 10,304.00

$ 52,500
45,500
$ 98,000

$ 52,500.00
46,956.00
$ 99,456.00
Chapter 4
Question 5

Input area:

Sales $ 4,200 Current assets $ 3,600 Current liabilities $ 2,100

Costs 3,300 Fixed assets 7,900 Long-term debt 3,650
Taxable income $ 900 Equity 5,750
Taxes 306 Total assets $ 11,500 Total $ 11,500
Net income $ 594

Sales increase 15%

Payout ratio 40%

Tax rate 34%

Output area:

Pro forma income statement Pro forma balance sheet

Sales $ 4,830.00 Current assets $ 4,140.00 Current liabilities $ 2,415.00
Costs 3,795.00 Fixed assets 9,085.00 Long-term debt 3,650.00
Taxable income $ 1,035.00 Equity 6,159.86
Taxes (34%) 351.90 Total $ 13,225.00 Total $ 12,224.86
Net income $ 683.10
Dividends $ 273.24
Add. To RE $ 409.86

External financing $ 1,000.14

Chapter 4
Question 6,7

Input area:

Sales $ 13,250 Current assets

Costs 9,480 Fixed assets
Taxable income $ 3,770 Total
Taxes 1,508
Net income $ 2,262

Payout ratio 30%

Tax rate 40%

Output area:

Income statement Balance sheet

Sales $ 13,250.00 Current assets
Costs 9,480.00 Fixed assets
Taxable income $ 3,770.00
Taxes 1,508.00 Total
Net income $ 2,262.00
Dividends $ 678.60
Add. To RE 1,583.40

Return on assets 5.78%

Retention ratio 70%
Internal growth rate 4.21%

Return on equity 10.45%

Sustainable growth rate 7.89%
$ 10,400 Debt $ 17,500
28,750 Equity 21,650
$ 39,150 Total $ 39,150

Balance sheet
$ 10,400 Debt $ 17,500
28,750 Equity 21,650

$ 39,150 Total $ 39,150

Chapter 4
Question 8

Input area:

Sales $ 42,000 Current assets 21,000

Costs 28,500 Fixed assets 86,000
Taxable income $ 13,500 Total $ 107,000
Taxes 4,590
Net income $ 8,910

Payout ratio 30%

Tax rate 34%

Output area:

Return on equity 15.91%

Retention ratio 70%
Sustainable growth rate 12.53%

Maximum increase in sales $ 5,264.03

Debt 51,000
Equity 56,000
Total $ 107,000
Chapter 4
Question 9

Input area:

Sales $ 38,000
Costs 18,400
Taxable income $ 19,600
Taxes 6,664
Net income $ 12,936

Dividends $ 5,200
Addition to RE $ 7,736

Tax rate 34%

Increase in sales 20%

Output area:

Pro forma income statement

Sales $ 45,600.00
Costs 22,080.00
Taxable income $ 23,520.00
Taxes 7,996.80
Net income $ 15,523.20
Dividends $ 6,240.00
Add. To RE $ 9,283.20

Payout ratio 40.20%

Chapter 4
Question 10

Input area:

Sales $ 38,000

Current assets Current liabilities

Cash $ 3,050 Accounts payable
Accounts Receivable 6,900 Notes payable
Inventory 7,600 Total
Total $ 17,550 Long-term debt
Fixed assets
Net plant and equipment $ 34,500 Owners' equity
Common stock
Retained earnings
Total
Total liabilities and
Total assets $ 52,050 Owners' equity

Output area:

HEIR JORDAN CORPORATION

Balance Sheet
Assets Liabilities and Owners' equ
Current assets Current liabilities
Cash $ 3,050 8.03% Accounts payable
Accounts Receivable 6,900 18.16% Notes payable
Inventory 7,600 20.00% Total
Total $ 17,550 46.18% Long-term debt
Fixed assets
Net plant and equipment $ 34,500 90.79% Owners' equity
Common stock
Retained earnings
Total
Total liabilities and
Total assets $ 52,050 136.97% Owners' equity
nt liabilities
nts payable $ 1,300
6,800
$ 8,100
$ 25,000

mon stock $ 15,000

ined earnings 3,950
$ 18,950
abilities and
Owners' equity $ 52,050

ATION

Liabilities and Owners' equity

nt liabilities
nts payable $ 1,300 3.42%
6,800 n/a
$ 8,100 n/a
$ 25,000 n/a

mon stock $ 15,000 n/a

ined earnings 3,950 n/a
$ 18,950 n/a
abilities and
Owners' equity $ 52,050
Chapter 4
Question 11

Input area:

Sales $ 38,000
Costs 18,400
Cash 3,050
Accounts receivable 6,900
Inventory 7,600
Net plant and equipment 34,500
Accounts payable 1,300
Notes payable 6,800
Long-term debt 25,000
Common stock 15,000
Retained earnings 3,950
Dividends 6,240
Net income 15,523

Increase in sales 15%

Tax rate 34%

Output area:
Payout ratio 0.40

Pro forma income statement

Sales $ 43,700.00
Costs 21,160.00
Taxable income $ 22,540.00
Taxes 7,663.60
Net income $ 14,876.40
Dividends $ 5,980.00
Add. To RE 8,896.40

HEIR JORDAN CORPORATION

Balance Sheet
Assets Liabilities and Owners' equity
Current assets Current liabilities
Cash $ 3,507.50 Accounts payable $ 1,495.00
Accounts Receivable 7,935.00 Notes payable 6,800.00
Inventory 8,740.00 Total 8,295.00
Total $ 20,182.50 Long-term debt $ 25,000.00
Fixed assets
Net plant and equipment $ 39,675.00 Owners' equity
Common stock $ 15,000.00
Retained earnings 12,846.40
Total $ 27,846.40
Total liabilities and
Total assets $ 59,857.50 Owners' equity $ 61,141.40

External financing needed $ (1,283.90)

Chapter 4
Question 12

Input area:

Return on assets 8%
Payout ratio 20%

Output area:

Plowback ratio 80%

Internal growth rate 6.84%

Chapter 4
Question 13

Input area:

Return on equity 15%

Payout ratio 25%

Output area:

Plowback ratio 75%

Sustainable growth rate 12.68%

Chapter 4
Question 14

Input area:

Profit margin 8.2%

Capital intensity ratio 0.75
Debt-equity ratio 0.40
Net income $ 43,000
Dividends $ 12,000

Output area:

Return on equity 15.31%

Plowback ratio 72.09%

Sustainable growth rate 12.40%

Chapter 4
Question 15

Input area:

Total asset turnover 2.50

Profit margin 7.8%
Equity multiplier 1.80
Payout ratio 60%

Output area:

Return on equity 35.10%

Plowback ratio 40.00%

Sustainable growth rate 16.33%

 Chapter 4
Question 16,17

Input area:

Percent of capacity 95%

Current sales $ 550,000
### Fixed assets $ 440,000
### Projected sales $ 630,000

Output area:

Full capacity $ 578,947

Maximum sales growth 5.26%

Fixed assets / Full capacity sales 0.7600

Total fixed assets $ 478,800

New fixed assets $ 38,800.00

Chapter 4
Question 18

Input area:

Sustainable growth rate 12%

Debt/equity ratio 1.20
Payout ratio 30%
Assets/sales 0.75

Output area:

Plowback ratio 70%

Return on equity 15.31%

Profit margin 5.22%

Chapter 4
Question 19

Input area:

Sustainable growth rate 11.50%

Payout ratio 30.0%
Assets/sales ratio 0.60
Profit margin 6.20%

Output area:

Plowback ratio 70%

Return on equity 14.73%

Equity multiplier 1.43

Debt/equity ratio 0.43

Chapter 4
Question 20

Input area:

Internal growth rate 7%

Payout ratio 25%
Profit margin 5%

Output area:

Plowback ratio 75%

Return on assets 8.72%

Total asset turnover 1.74

Chapter 4
Question 21

Input area:

Profit margin 4.8%

Total asset turnover 1.25
Total debt ratio 0.65
Payout ratio 30%

Output area:

Debt/equity 1.86

Return on assets 6.00%

Plowback ratio 0.7

Return on equity 17.14%

Sustainable growth rate 13.64%

Chapter 4
Question 22

Input area:

Sales $ 195,000
Net income $ 17,500
Dividends $ 9,300
Debt $ 86,000
Equity $ 58,000

Output area:

Plowback ratio 0.4686

Return on equity 30.17%
Sustainable growth rate 16.47%

New total assets $ 167,710.84

Debt/equity 1.48
New total debt $ 100,160.64
Additional borrowing $ 14,160.64

Return on assets 0.1215

Internal growth rate 6.04%
Chapter 4
Question 23

Input area:

Beginning equity $ 135,000

Ending TA $ 250,000
Net income $ 19,000
Dividends $ 2,500

Output area:

Ending equity $ 151,500

Plowback ratio 86.84%

ROE (beg. equity) 14.07%

ROE (ending equity) 12.54%

Exact SGR 12.22%

ROE x b (using beg. 12.22%

Equity for ROE)

ROE x b (using end 10.89%

Equity for ROE)
Chapter 4
Question 24

Input area:

Beginning equity $ 135,000

Ending TA $ 250,000
Net income $ 19,000
Dividends $ 2,500

Output area:

Plowback ratio 86.84%

ROA (ending TA) 7.60%

IGR 7.07%

ROA x b (end ROA) 6.60%

Beginning TA $ 233,500
Beginning ROA 8.14%

ROA (beginning TA) 7.07%

Chapter 4
Questions 25-29

Input area:

For problems 26, 27, and 29, change the percent sales growth rate in the input area below.

Sales $ 929,000 Assets Liabilities and owners' equity

Costs 723,000 Current assets Current liabilities
Other expenses 19,000 Cash $ 25,300 Accounts payable
EBIT $ 187,000 Accounts receivable 40,700 Notes payable
Interest expense 14,000 Inventory 86,900 Total
Taxable income $ 173,000 Total $ 152,900 Long-term debt
Taxes 60,550 Fixed assets
Net income $ 112,450 Net plant and Owners' equity
equipment $ 413,000 Common stock and
Dividends $ 33,735 paid-in surplus
Add. to retained earnings 78,715 Retained earnings
Total
Sales increase 35.00% Total liabilities and
Operating capacity 80% Total assets $ 565,900 owners' equity
Tax rate 35%

Output area:

Dividend payout ratio 0.30

2009 Pro Forma Income Statement Assets Liabilities and owners' equity
Sales $ 1,254,150 Current assets Current liabilities
Costs 976,050 Cash $ 34,155 Accounts payable
Other expenses 25,650 Accounts receivable 54,945 Notes payable
EBIT $ 252,450 Inventory 117,315 Total
Interest expense 14,000 Total $ 206,415 Long-term debt
Taxable income $ 238,450 Fixed assets
Taxes 83,458 Net plant and Owners' equity
Net income $ 154,993 equipment 557,550 Common stock and
Dividends $ 46,498 paid-in surplus
Add. To RE 108,495 Retained earnings
Total
Total liabilities and
Total assets $ 763,965 owners' equity

External financing $ 65,770

#25 and #26

Full capacity sales $ 1,161,250
Fixed assets required at full capacity 0.35565
Total fixed assets $ 446,040

External financing needed $ (45,740)

#27 and #29

2006 Debt/equity ratio 0.75255
Debt-asset ratio 0.42940
Equity-asset ratio 0.57060
New total debt $ 324,648
New LTD $ 57,848
Excess debt raised $ (7,922)

EFN $ 65,770
Assets Liabilities and owners' equity
Current assets Current liabilities
Cash $ 34,155 Accounts payable
Accounts receivable 54,945 Notes payable
 Inventory 117,315 Total
Total $ 206,415 Long-term debt
Fixed assets
Net plant and Owners' equity
equipment $ 557,550 Common stock and
paid-in surplus
Retained earnings
Total
Total liabilities and
Total assets $ 763,965 owners' equity

Assets Liabilities and owners' equity

Current assets Current liabilities
Cash $ 34,155 Accounts payable
Excess cash (7,922) Notes payable
Accounts receivable 54,945 Total
Inventory 117,315 Long-term debt
Total $ 198,493
Fixed assets Owners' equity
Net plant and Common stock and
equipment 557,550 paid-in surplus
Retained earnings
Total
Total liabilities and
Total assets $ 756,043 owners' equity

Total debt at current D/A $ 328,050.00

Total equity at current D/A $ 435,915.00

Debt repurchase $ (3,401.74)

Equity repurchase $ (4,520.25)
Assets Liabilities and owners' equity
Current assets Current liabilities
Cash $ 34,155 Accounts payable
Accounts receivable 54,945 Notes payable
Inventory 117,315 Total
Total $ 206,415 Long-term debt
Fixed assets
Net plant and Owners' equity
equipment 557,550 Common stock and
paid-in surplus
Retained earnings
Total
Total liabilities and
Total assets $ 763,965 owners' equity

#28
Plowback ratio 0.70
ROA 19.87%
Internal growth rate 16.16%

#29
Plowback ratio 0.70
ROE 34.83%
Internal growth rate 32.24%
lities and owners' equity

$ 68,000
17,000
$ 85,000
$ 158,000

$ 140,000
182,900
$ 322,900

$ 565,900

lities and owners' equity

$ 91,800
17,000
$ 108,800
158,000

$ 140,000
291,395
$ 431,395

$ 698,195

lities and owners' equity

$ 91,800
17,000
 $ 108,800
$ 215,848

$ 140,000
291,395
$ 431,395

$ 756,043

lities and owners' equity

$ 91,800
17,000
$ 108,800
215,848

$ 140,000
291,395
$ 431,395

$ 756,043

lities and owners' equity

$ 91,800
17,000
$ 108,800
219,250

$ 140,000
295,915
$ 435,915

$ 763,965
Chapter 4
Question 30

Input area:

Growth rate 12%

Debt-equity ratio 0.30
Profit margin 6.70%
Total assets to sales 1.35

Output area:

Return on equity 6.45%

Plowback ratio 1.66

Payout ratio (0.66)

This is a negative dividend payout ratio of 66% which is impossible;

the growth rate is not consistent with the other constraints. The lowest possible
payout ratio is 0, which corresponds to b = 1, or total earnings retention.

Maximum sustainable g 6.90%

h is impossible;
st possible
Chapter 4
Question 31,32

Output area:

External financing needed = Increase in assets - Addition to retained earnings

Increase in assets = A X g
Addition to retained earnings = (Net income X b) (1 + g)
Net income = PM(S)

Thus, EFN = A(g) - PM(S)b(1 + g)

= A(g) - PM(S)b - [PM(S)b]g
= -PM(S)b + [A-PM(S)b]g

Internal growth rate:

EFN = 0 = -PM(S)b + [A - PM(S)b]g

g = [PM(S)b] / [A - PM(S)b]
Since ROA = NI / A = PM(S) / A, dividing numerator and denominator by A gives
g = [(PM(S)b) / A] / [(A - PM(S)b) / A]
= b(ROA) / [1 - b(ROA)]
retained earnings

nominator by A gives