Munson Communications Company has just reported earnings for the year ended June 30, 2011. Below are the firm’s income statement and balance sheet. The Company had a 55 percent dividend payout ratio for the last 10 years and does not plan to change this policy. Based on internal forecasts, the company expects the demand for its products to grow at a rate of 18 percent for the next year and has projected the sales growth for 2012 to be 18 percent. Assume that equity accounts and long-term debt do not vary directly with sales, but change when retained earnings change or additional capital is issued. Munson Communications Company Balance Sheet as of June 30, 2011 Assets: Liabilities and Stockholders’ Equity: Cash $1,728,639 Accounts payables $4,666,673 Accounts receivables 3,009,421 Notes payables 2,507,094 Inventories 11,492,993     Total current assets $16,231,054 Total current liabilities $7,173,767         Net fixed assets 22,380,636 Long-term debt 13,345,242 Other assets 1,748,906 Common stock 10,165,235     Retained earnings 9,676,351 Total assets $40,360,595 Total liabilities and equity $40,360,595 Munson Communications Company Income Statement for the Fiscal Year Ended June 30, 2011 Revenues $79,722,581 Costs 59,358,499 EBITDA $20,364,082 Depreciation 7,318,750 EBIT $13,045,332 Interest 3,658,477 EBT $9,386,855 Taxes (35%) 3,285,399 Net income $6,101,456   a. What is the firm’s internal growth rate (IGR)? b. What is the firm’s sustainable growth rate (SGR)? c. What is the external financing needed (EFN) to accommodate the expected growth? d. Construct the firm’s 2012 pro forma financial statements below under the assumption that all external financing will be done with long-term debt.

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter12: Corporate Valuation And Financial Planning
Section: Chapter Questions
Problem 9P
icon
Related questions
Question
Practice Pack

Munson Communications Company has just reported earnings for the year ended June 30, 2011. Below are the firm’s income statement and balance sheet. The Company had a 55 percent dividend payout ratio for the last 10 years and does not plan to change this policy. Based on internal forecasts, the company expects the demand for its products to grow at a rate of 18 percent for the next year and has projected the sales growth for 2012 to be 18 percent. Assume that equity accounts and long-term debt do not vary directly with sales, but change when retained earnings change or additional capital is issued.

Munson Communications Company Balance Sheet as of June 30, 2011
Assets: Liabilities and Stockholders’ Equity:
Cash $1,728,639 Accounts payables $4,666,673
Accounts receivables 3,009,421 Notes payables

2,507,094

Inventories

11,492,993

   
Total current assets $16,231,054 Total current liabilities $7,173,767
       
Net fixed assets 22,380,636 Long-term debt 13,345,242
Other assets

1,748,906

Common stock 10,165,235
    Retained earnings

9,676,351

Total assets $40,360,595 Total liabilities and equity $40,360,595



Munson Communications Company
Income Statement for the Fiscal Year
Ended June 30, 2011
Revenues $79,722,581
Costs

59,358,499

EBITDA $20,364,082
Depreciation

7,318,750

EBIT $13,045,332
Interest

3,658,477

EBT $9,386,855
Taxes (35%)

3,285,399

Net income $6,101,456

 

a. What is the firm’s internal growth rate (IGR)?

b. What is the firm’s sustainable growth rate (SGR)?

c. What is the external financing needed (EFN) to accommodate the expected growth?

d. Construct the firm’s 2012 pro forma financial statements below under the assumption that all external financing will be done with long-term debt. 

 

Expert Solution
video

Learn your way

Includes step-by-step video

steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Financial Policy and Growth
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT