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" Cranberry Corporation Income Statement ($ in m...

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" Cranberry Corporation Income Statement ($ in millions) Sales $300 Costs 250 EBT $ 50 Taxes (34%) 17 Net income $ 33 Retained earnings $ 22 Dividends $ 11 Cranberry Corporation Balance Sheet ($ in millions) Cash $5 Accounts payable $ 40 Accounts receivables 40 Notes payable 30 Inventory 65 Current liabilities $ 70 Current assets $110 Long-term debt 155 Net plant & equip. 290 Common stock 75 Retained earnings 100 Total assets $400 Total liab. & equity $400 REQUIRED: a. Assuming a constant profit margin, what will Cranberry Corporation's net income be if sales increase by 10%? (2 marks) b. What is Cranberry Corporation's addition to retained earnings with a 10% increase in sales? Assume the dividend payout ratio and profit margin remain fixed. (2 marks) c. Assume Cranberry Corporation is operating at full capacity and must maintain the same level of capital intensity. What will total assets be if sales increase by 10%? Assume costs, current liabilities, and current assets vary directly with sales and that the dividend payout ratio remains unchanged. (3 marks) d. Assume Cranberry Corporation is using its fixed assets at 90% capacity. This means that no new fixed assets are required until full capacity is reached. Above full capacity, assume Cranberry must maintain the same level of capital intensity for all assets. Assume costs, current liabilities, and current assets vary directly with sales, and that the dividend payout ratio remains unchanged. If sales increase by 20%, what will total fixed assets be? (5 marks) e. How much external financing is needed for a 20% increase in sales if the Corporation is currently operating at full capacity? Assume assets and costs vary directly with sales but no current liabilities increase with sales and that the dividend payout ratio remains fixed. (3 marks)

 

Paper#8646 | Written in 18-Jul-2015

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