(Solution) - Krogh Lumber s 2015 financial statements are shown here Krogh Lumber Income -(2025 Original AI-Free Solution)
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Krogh Lumber's 2015 financial statements are shown here.
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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 2015 with regard to all items except fixed assets; fixed assets in 2015 were being utilized to only 75% of capacity. By what percentage could 2016 sales increase over 2015 sales without the need for an increase in fixed assets?
b. Now suppose 2016 sales increase by 25% over 2015 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 total liabilities-to-assets 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 2016 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 11%. Any stock issuances or repurchases will be made at the firm's current stock price of $40. Develop Krogh's projected financial statements like those shown in Table 17.2. What are the balances of notes payable, bonds, common stock, and retained earnings?