The most recent financial statements for Fleury Inc., follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

The most recent financial statements for Fleury Inc., follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

FLEURY, INC. 2011 Income Statement
Sales				$	755,000
Costs					590,000
Other expenses					11,000
Earnings before interest and taxes				$	154,000
Interest paid					12,000
Taxable income				$	142,000
Taxes (40%)					56,800
Net income				$	85,200
Dividends	$	34,080
Addition to retained earnings		51,120

FLEURY, INC. Balance Sheet as of December 31, 2011
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	21,440		Accounts payable	$	55,600
Accounts receivable		33,760		Notes payable		14,800
Inventory		70,720		Total	$	70,400
Total	$	125,920		Long-term debt	$	138,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	124,000
Net plant and equipment	$	240,000		Retained earnings		33,520
				Total	$	157,520
Total assets	$	365,920		Total liabilities and owners’ equity	$	365,920

  

Complete the pro forma income statements below. (Input all amounts as positive values.)

   

FLEURY INC. Pro Forma Income Statement
	15 % Sales Growth			20 % Sales Growth			25 % Sales Growth
Sales	$			$			$
Costs
Other expenses
EBIT	$			$			$
Interest
Taxable income	$			$			$
Taxes
Net income	$			$			$
Dividends	$			$			$
Add to RE

Calculate the EFN for 15, 20 and 25 percent growth rates. (Negative amount should be indicated by a minus sign.)

	15%	20%	25%
EFN	$	$	$

Explanation:

Taxes 40%
15% Sales Growth	=	$66,040
20% Sales Growth	=	$69,120
25% Sales Growth	=	$72,200

   

We will calculate the EFN for the 15 percent growth rate first. Assuming the payout ratio is constant, the dividends paid will be:

Dividends	=	($34,080 / $85,200)($99,060)
Dividends	=	$39,624

And the addition to retained earnings will be:

Addition to retained earnings	=	$99,060 – 39,624
Addition to retained earnings	=	$59,436

The new retained earnings on the pro forma balance sheet will be:

New retained earnings	=	$33,520 + 59,436
New retained earnings	=	$92,956

The pro forma balance sheet will look like this:

15% Sales Growth:

FLEURY INC. Pro Forma Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	24,656		Accounts payable	$	63,940
Accounts receivable		38,824		Notes payable		14,800
Inventory		81,328		Total	$	78,740
Total	$	144,808		Long-term debt	$	138,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	124,000
Net plant and equipment		276,000		Retained earnings		92,956
				Total	$	216,956
Total assets	$	420,808		Total liabilities and owners’ equity	$	433,696

So the EFN is:

EFN	=	Total assets – Total liabilities and equity
EFN	=	$420,808 – 433,696
EFN	=	–$-12,888

At a 20 percent growth rate, and assuming the payout ratio is constant, the dividends paid will be:

Dividends	=	($34,080 / $85,200)($103,680)
Dividends	=	$41,472

And the addition to retained earnings will be:

Addition to retained earnings	=	$103,680 – 41,472
Addition to retained earnings	=	$62,208

The new retained earnings on the pro forma balance sheet will be:

New retained earnings	=	$33,520 + 62,208
New retained earnings	=	$95,728

The pro forma balance sheet will look like this:

20% Sales Growth:

FLEURY INC. Pro Forma Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	25,728		Accounts payable	$	66,720
Accounts receivable		40,512		Notes payable		14,800
Inventory		84,864		Total	$	81,520
Total	$	151,104		Long-term debt	$	138,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	124,000
Net plant and equipment		288,000		Retained earnings		95,728
				Total	$	219,728
Total assets	$	439,104		Total liabilities and owners’ equity	$	439,248

So the EFN is:

EFN	=	Total assets – Total liabilities and equity
EFN	=	$439,104 – 439,248
EFN	=	$-144

At a 25 percent growth rate, and assuming the payout ratio is constant, the dividends paid will be:

Dividends	=	($34,080 / $85,200)($108,300)
Dividends	=	$43,320

And the addition to retained earnings will be:

Addition to retained earnings	=	$108,300 – 43,320
Addition to retained earnings	=	$64,980

The new retained earnings on the pro forma balance sheet will be:

New retained earnings	=	$33,520 + 64,980
New retained earnings	=	$98,500

The pro forma balance sheet will look like this:

25% Sales Growth:

FLEURY INC. Pro Forma Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	26,800		Accounts payable	$	69,500
Accounts receivable		42,200		Notes payable		14,800
Inventory		88,400		Total	$	84,300
Total	$	157,400		Long-term debt	$	138,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	124,000
Net plant and equipment		300,000		Retained earnings		98,500
				Total	$	222,500
Total assets	$	457,400		Total liabilities and owners’ equity	$	444,800

So the EFN is:

EFN	=	Total assets – Total liabilities and equity
EFN	=	$457,400 – 444,800
EFN	=	$12,600