1. The document appears to be a pro forma balance sheet and income statement for General Aviation, Inc. projecting a 12% growth rate for the next year. It includes projected figures for line items like sales, expenses, assets, liabilities, equity, and net income.
2. Additional details are provided on calculating a pro forma depreciation expense based on a planned $5 million increase in fixed assets. The pro forma statements are adjusted to account for this change.
3. Calculations are shown for evaluating the company's external financing needs based on the projected asset growth and determining its internal growth rate and sustainable growth rate based on return on assets, equity, and retention ratio calculations.
1. The document appears to be a pro forma balance sheet and income statement for General Aviation, Inc. projecting a 12% growth rate for the next year. It includes projected figures for line items like sales, expenses, assets, liabilities, equity, and net income.
2. Additional details are provided on calculating a pro forma depreciation expense based on a planned $5 million increase in fixed assets. The pro forma statements are adjusted to account for this change.
3. Calculations are shown for evaluating the company's external financing needs based on the projected asset growth and determining its internal growth rate and sustainable growth rate based on return on assets, equity, and retention ratio calculations.
1. The document appears to be a pro forma balance sheet and income statement for General Aviation, Inc. projecting a 12% growth rate for the next year. It includes projected figures for line items like sales, expenses, assets, liabilities, equity, and net income.
2. Additional details are provided on calculating a pro forma depreciation expense based on a planned $5 million increase in fixed assets. The pro forma statements are adjusted to account for this change.
3. Calculations are shown for evaluating the company's external financing needs based on the projected asset growth and determining its internal growth rate and sustainable growth rate based on return on assets, equity, and retention ratio calculations.
1. The document appears to be a pro forma balance sheet and income statement for General Aviation, Inc. projecting a 12% growth rate for the next year. It includes projected figures for line items like sales, expenses, assets, liabilities, equity, and net income.
2. Additional details are provided on calculating a pro forma depreciation expense based on a planned $5 million increase in fixed assets. The pro forma statements are adjusted to account for this change.
3. Calculations are shown for evaluating the company's external financing needs based on the projected asset growth and determining its internal growth rate and sustainable growth rate based on return on assets, equity, and retention ratio calculations.
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Balance Sheet General Aviation, Inc. December 31, 2005
a)
Pro forma financial
statements for next year at a 12 percent growth rate are: Income statement Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends Add to RE $ 34,159,350 24,891,530 4,331,600 1,366,680
Marking: Each blanks will be given 1 marks for the balance
sheet. While any of two ratio limitations that listed by student will be given two marks.
the higher growth rate
is possible. Note however, that changing any one of these will have the effect of changing the pro forma financial statements.
0.25 X10 =2.5
In capital structure decision, financial managers need to determine specific mixture of long term debt and equity the firm uses to finance its operations Thus, EFN is used to find additional long term financing needed to support the projected increase in total asset. Now we are assuming the company can only build in amounts of $5 million. We will assume that the company will go ahead with the fixed asset acquisition. To estimate the new depreciation charge, we will find the current depreciation as a percentage of fixed assets, then, apply this percentage to the new fixed assets. The depreciation as a percentage of assets this year was:
he new level of fixed assets with the $5 million purchase will be: New fixed assets = $16,122,400 + 5,000,000 = $21,122,400
So, the pro forma depreciation will be:
T Pro forma depreciation = .0848($21,122,400) Pro forma depreciation = $1,790,525
We will use this amount in the pro forma income statement. So, the pro forma income statement will be: Income statement Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends Add to RE $ 34,159,350 24,891,530 4,331,600 1,790,525 $ 3,145,696 478,240 $ 2,667,456 1,066,982 $ 1,600,473 0.25 X10 =2.5 $ 582,955 1,017,519
b)
The pro forma balance sheet will remain the same except for the fixed asset and equity accounts. The fixed asset account will increase by $5 million, rather than the growth rate of sales. Balance sheet Assets Current Assets Cash Accounts rec. Inventory Total CA $ 493,920 793,408 1,161,574 $ 2,448,902 Liabilities & Equity Current Liabilities Accounts Payable$ Notes Payable Total CL$ Long-term debt Shareholder Equity Common stock Retained earnings Total Equity Total L&E $ 995,680 2,030,000 3,025,680 5,320,000 $ Fixed assets Net PP&E Total Assets So, the EFN is: $ 21,122,400$ 23,571,302 350,000 10,737,439 $ 11,087,439 $ 19,433,119 EFN = Total assets Total liabilities and equity EFN = $23,581,302 19,433,119 EFN = $4,138,184 Since the fixed assets have increased at a faster percentage than sales, the capacity utilization for next year will decrease.
12 X 0.25=3
d) To calculate the internal growth rate, we first need to find the ROA and the retention ratio, so: ROA = NI / TA ROA = $1,537,452 / $18,309,920 ROA = .0840 or 8.40% b = Addition to RE / NI b = $977,452 / $1,537,452 b = 0.64 Now we can use the internal growth rate equation to get: Internal growth rate = (ROA b) / [1 (ROA b)] Internal growth rate = [0.0840(.64)] / [1 0.0840(.64)] Internal growth rate = .0564 or To find the sustainable growth rate, we need the ROE, which is: ROE = NI / TE ROE = $1,537,452 / $10,069,920 ROE = .1527 or 15.27% Using the retention ratio we previously calculated, the sustainable growth rate is: Sustainable growth rate = (ROE b) / [1 (ROE b)] Sustainable growth rate = [0.1527(.64)] / [1 0.1527(.64)] Sustainable growth rate = .1075 or 10.75% The internal growth rate is the growth rate the company can achieve with no outside financing of any sort.
0.25 X16=4 ROA = NI / TA ROA = $1,537,452 / $18,309,920 ROA = .0840 or 8.40% b = Addition to RE / NI b = $977,452 / $1,537,452 b = 0.64 Now we can use the internal growth rate equation to get: Internal growth rate = (ROA b) / [1 (ROA b)] Internal growth rate = [0.0840(.64)] / [1 0.0840(.64)] Internal growth rate = .0564 or 5.64% To find the sustainable growth rate, we need the ROE, which is: ROE = NI / TE ROE = $1,537,452 / $10,069,920 ROE = .1527 or 15.27% Using the retention ratio we previously calculated, the sustainable growth rate is: Sustainable growth rate = (ROE b) / [1 (ROE b)] Sustainable growth rate = [0.1527(.64)] / [1 0.1527(.64)] Sustainable growth rate = .1075 or 10.75% The internal growth rate is the growth rate the company can achieve with no outside financing of any sort. The sustainable growth rate is the growth rate the company can achieve by raising outside debt based on its retained earnings and current capital structure.
