2018

Sales 3,600,000
Operating costs 3,279,720
EBIT 320,280
Less Interest expense 20,280
EBT 300,000
Taxes (40%) 120,000
Net Income 180,000
Dividends 108,000
Add to RE 72,000

Balance Sheets
2018

Assets
Cash 180,000
Account receivable 360,000

Inventories 720,000

Fixed assets (grow with sales) 1,440,000

Total assets 2,700,000

Liabilities and Equity

Payables + accruals (both grow with sales) 540,000

Short-term bank loans 56,000

Total current liabilities 596,000

Long-term bonds 100,000

Total liabilities 696,000

Common stock 1,800,000
Retained earnings 204,000

Total common equity 2,004,000

Total liabilities and equity 2,700,000

b. AFN = $2,700,000/$3,600,000(DSales) – ($360,0

– (0.05)($3,600,000 + DSales)0.4
$0 = 0.75(DSales) – 0.15(DSales) – 0.02(DSale
$0 = 0.58(DSales) – $72,000
$72,000 = 0.58(DSales)
DSales = $124,138.
Growth rate in sales =
Sales $124,138
= = 3.45%.
$3,600,000 $3,600,000
 2019
3,960,000
3,465,000
495,000
37,125
457,875
183,150
274,725
164,835
109,890

2019

198,000
396,000
792,000

1,584,000

2,970,000

594,000

89,100

683,100
207,900
891,000
1,765,110
313,890
2,079,000
2,970,000

700,000/$3,600,000(DSales) – ($360,000 + $180,000)/$3,600,000(DSales)

(0.05)($3,600,000 + DSales)0.4
5(DSales) – 0.15(DSales) – 0.02(DSales) – $72,000
8(DSales) – $72,000
3.45%.
 Assets in 2019 will change to this amount, from the balance sheet:
Target total liabilities-to-assets ratio
Resulting total liabilities: (Target total liabilities-to-assets ratio)(2019 assets)

Less: Payables and accruals

Bank loans and bonds (= Interest-bearing debt)

Allocated to bank loans 30.00%

Allocated to bonds 70.00%

Interest expense: (Interest rate)(2019 Bank loans plus bonds)
Target equity ratio = 1 – Target total liabilities-to-assets ratio

Required total equity: (2019 assets)(Target equity ratio)

Retained earnings, from 2019 balance sheet

Required common stock = Required total equity – Retained earnings

Old shares outstanding 100,000

Increase in common stock = 2019 Common stock – 2018 Common stock (34,890)
Initial price per share 45.00
Change in shares = Change in equity/Initial price per share (775.33)
New shares outstanding = Old shares + D Shares 99,224.67
Old EPS = 2018 Net income/Old shares outstanding 1.80
New EPS = 2019 Net income/New shares outstanding 2.75
2,970,000

30%
891,000
(594,000)

297,000

89,100
207,900
37,125
70%

2,079,000

313,890
1,765,110