Question

Suppose that the 2017 actual and 2018 projected financial statements for Cramner Corp. are initially as shown in the following tables. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Cramner Corp. wants to cover the AFN with 45 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate? Income Statement 2017 Actual 2018 Forecast Sales $ 3,000,000 $ 4,050,000 Costs except depreciation 1,000,000 1,350,000 Depreciation 1,500,000 2,025,000 EBIT $ 500,000 $ 675,000 Less Interest 80,000 126,772 EBT $ 420,000 $ 548,228 Taxes (40%) 168,000 219,291 Net income $ 252,000 $ 328,937 Common Dividends $ 180,000 $ 180,000 Addition to Retained Earnings $ 72,000 $ 148,937 Balance Sheet 2017 Actual 2018 Forecast Assets Cash $ 100,000 $ 135,000 Accounts Receivable 200,000 270,000 Inventories 300,000 405,000 Total Current Assets $ 600,000 $ 810,000 Net Plant and Equipment 4,000,000 5,400,000 Total Assets $ 4,600,000 $ 6,210,000 Liabilities and Equity Accounts Payable $ 100,000 $ 135,000 Notes Payable 500,000 675,000 Accruals 100,000 135,000 Total Current Liabilities $ 700,000 $ 945,000 Long-term bonds 500,000 675,000 Total Debt $ 1,200,000 $ 1,620,000 Common Stock $ 3,000,000 $ 4,050,000 Retained Earnings 400,000 540,000 Total Common Equity $ 3,400,000 $ 4,590,000 Total Liabilities and Equity $ 4,600,000 $ 6,210,000

Answer 1