Please explain answers and show calculations/equations.
You have the following information for I. M. Small Enterprises for the current year (Y0).
|
Income Statement (M$)
|
Y0
|
Y1
|
|
Sales
|
1400
|
|
|
Cost of Goods Sold
|
700
|
|
|
SG&A
|
200
|
|
|
Depreciation
|
100
|
|
|
Earnings Before Interest & Tax (EBIT)
|
400
|
|
|
Interest Expense
|
40
|
|
|
Earnings Before Tax
|
360
|
|
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Taxes (40%)
|
144
|
|
|
Net Income
|
216
|
|
|
Dividends
|
100
|
|
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Balance Sheet (M$)
|
Y0
|
Y1
|
|
Cash
|
100
|
|
|
Accounts Receivable
|
300
|
|
|
Inventories
|
500
|
|
|
Current Assets
|
900
|
|
|
Gross PPE
|
400
|
|
|
Accumulated Depn
|
300
|
|
|
Net Fixed Assets
|
100
|
|
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TOTAL ASSETS
|
1,000
|
|
|
Accruals
|
25
|
|
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Accounts Payable
|
150
|
|
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Notes Payable
|
75
|
|
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Current Liabilities
|
250
|
|
|
Long Term Debt
|
350
|
|
|
Common Stock
|
100
|
|
|
Retained Earnings
|
300
|
|
|
Total Liability & Equity
|
1,000
|
|
Calculate the profit margin, asset turnover and financial leverage for Y0. Use DuPont to get the return on equity.If the industry has a net profit margin of 10%, a total asset turnover of 1.50 and financial leverage of 2, what conclusions can you make about Small?
A. Forecast the income statement and balance sheet for Y1.Assume:Sales and accounts receivable grow by 25%; cost of goods sold, inventory and accounts payable grow 20%; and SG&A grows 10%.Interest expense will fall to 25M.The following accounts will not change (same dollar amount): depreciation expense, dividends, cash, accruals, notes payable, long-term debt, common stock.The firm will need 150M more in gross PPE.Find the additional funds needed.
B. Use the cash account to balance the balance sheet. Calculate the change in net working capital from Y0 to Y1.