answer scheme group assignment 1

7/21/2019 Answer Scheme Group Assignment 1

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1.

a)Pro forma financialstatements for nextyear at a 12 percentgrowth rate are:IncomestatementSalesCOGS

Other expensesDepreciationEBIInterestaxa!le incomeaxes "#$%&

'et incomeDi(i)en)s*)) to +E, -#.1/0.-/$

2#.01./-$

#.--1.$$

1.-.$

Balance Sheet

General Aviation, Inc.

December 31, 2005

Marking: Each blanks will be given 1 marks for the balancesheet. While any of two ratio limitations that listed by studwill be given two marks.


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the higher growth rateis possi!le3'ote

howe(er. thatchanging any one ofthese will ha(e theeffectof changing the pro

forma financialstatements3

$32/ 41$523/


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pital str6ct6re )ecision. financial managers nee) to )etermine specific mixt6re of long term )e!t an) e76ity the firm 6ses to finance its operatE8' is 6se) to fin) a))itional long term financing nee)e) to s6pport the pro9ecte) increase in total asset3

we are ass6ming the company can only !6il) in amo6nts of ,/ million3 e will ass6me that theany will go ahea) with the fixe) asset ac76isition3 o estimate the new )epreciation charge. wein) the c6rrent )epreciation as a percentage of fixe) assets. then. apply this percentage to theixe) assets3 he )epreciation as a percentage of assets this year was:

eciation percentage 5 ,1.-.$ ; ,1.122.#$$eciation percentage 5 3$# or 8.48%

w le(el of fixe) assets with the ,/ million p6rchase will !e:fixe) assets 5 ,1.122.#$$ < /.$$$.$$$ 5 $21,122,400

e pro forma )epreciation will !e:

orma )epreciation 5 3$#",21.122.#$$&orma )epreciation 5 ,1.=0$./2/

ill 6se this amo6nt in the pro forma income statement3 So. the pro forma income statement will

me statement

Sexpenses

eciation

st

!le income"#$%&ncomeen)so +E/0.-/$

01./-$

-1.$$

90,525

#/.08,240

=.#/

66,982

00,473

X10

=2.5

c).


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b)


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ro forma !alance sheet will remain the same except for the fixe) asset an) e76ity acco6nts3 heasset acco6nt will increase !y ,/ million. rather than the growth rate of sales3nce sheetsnt *ssets

6nts rec3ntoryl C*

-.02$-.#$1./=#

#.0$2>ia!ilities ? E76ity

nt >ia!ilities6nts Paya!le,s Paya!leC>,

@term )e!thol)er E76itymon stocAne) earningsE76ity

>?E

$

.$$$

.$

.$$$

assetsP?E*ssetse E8' is:

22.#$$, 2-./=1.-$2

$.$$$ 1$.=-=.#-0

$=.#-0

#--.110

5 otal assets otal lia!ilities an) e76ity

5 ,2-./1.-$2 10.#--.1105 ,#.1-.1#

the fixe) assets ha(e increase) at a faster percentage than sales. the capacity 6tiliation foryear will )ecrease3

0.25=3


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o calc6late the internal growth rate. we first nee) to fin) the +O* an) the retention ratio. so:5 'I ; *5 ,1./-=.#/2 ; ,1.-$0.02$5 3$#$ or 3#$%

))ition to +E ; 'I0==.#/2 ; ,1./-=.#/2#

we can 6se the internal growth rate e76ation to get:

nal growth rate 5 "+O* !& ; 1 "+O* !&Fnal growth rate 5 $3$#$"3#&F ; 1 $3$#$"3#&F

nal growth rate 5 3$/# orn) the s6staina!le growth rate. we nee) the +OE. which is:5 'I ; E5 ,1./-=.#/2 ; ,1$.$0.02$5 31/2= or 1/32=%

g the retention ratio we pre(io6sly calc6late). the s6staina!le growth rate is:ina!le growth rate 5 "+OE !& ; 1 "+OE !&Fina!le growth rate 5 $31/2="3#&F ; 1 $31/2="3#&Fina!le growth rate 5 31$=/ or 1$3=/%

nternal growth rate is the growth rate the company can achie(e with no o6tsi)e financing of any3

415#

5 'I ; *5 ,1./-=.#/2 ; ,1.-$0.02$

5 3$#$ or 3#$%))ition to +E ; 'I0==.#/2 ; ,1./-=.#/2

#we can 6se the internal growth rate e76ation to get:

nal growth rate 5 "+O* !& ; 1 "+O* !&Fnal growth rate 5 $3$#$"3#&F ; 1 $3$#$"3#&Fnal growth rate 5 30564 or 5.64%

n) the s6staina!le growth rate. we nee) the +OE. which is:5 'I ; E5 ,1./-=.#/2 ; ,1$.$0.02$

5 31/2= or 1/32=%g the retention ratio we pre(io6sly calc6late). the s6staina!le growth rate is:ina!le growth rate 5 "+OE !& ; 1 "+OE !&Fina!le growth rate 5 $31/2="3#&F ; 1 $31/2="3#&F

ina!le growth rate 5 31$=/ or 1$3=/%nternal growth rate is the growth rate the company can achie(e with no o6tsi)e financing of anyhe s6staina!le growth rate is the growth rate the company can achie(e !y raising o6tsi)e )e!t

on its retaine) earnings an) c6rrent capital str6ct6re3


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answer scheme group assignment 1

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