Find cranberry corporation''s addition to retained earnings

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Reference no: EM1312674

Compute the necessary requirements on the basis of details

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%?

b. What is Cranberry Corporation's addition to retained earnings with a 10% increase in sales? Assume the dividend payout ratio and profit margin remains fixed.

c. Assume Cranberry Corporation is operating at full capacity. 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.

d. Assume Cranberry Corporation is using its fixed assets at 90% capacity. 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?

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.

Reference no: EM1312674

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