Suppose that the 2017 actual and 2018 projected financialstatements for Cramner Corp. are initially as shown in thefollowing tables. In these tables, sales are projected to rise 35percent in the coming year, and the components of the incomestatement and balance sheet that are expected to increase at thesame 35 percent rate as sales are indicated with anitalics font. Assuming that Cramner Corp. wants to coverthe AFN with 45 percent equity, 25 percent long-term debt, and theremainder from notes payable, what amount of additional funds willthey need to raise if debt carries an 8 percent interest rate?
| Income Statement |
| 2017
Actual | 2018 Forecast |
| Sales | $ | 3,000,000 | | $ | 4,050,000 | |
| Costs except depreciation | | 1,000,000 | | | 1,350,000 | |
| Depreciation | | 1,500,000 | | | 2,025,000 | |
| EBIT | $ | 500,000 | | $ | 675,000 | |
| Less Interest | | 80,000 | | | 126,772 | |
| EBT | $ | 420,000 | | $ | 548,228 | |
| Taxes (40%) | | 168,000 | | | 219,291 | |
| Net income | $ | 252,000 | | $ | 328,937 | |
| Common Dividends | $ | 180,000 | | $ | 180,000 | |
| Addition to Retained Earnings | $ | 72,000 | | $ | 148,937 | |
|
| Balance Sheet |
| 2017
Actual | 2018
Forecast |
| Assets | | | | | | |
| Cash | $ | 100,000 | | $ | 135,000 | |
| Accounts Receivable | | 200,000 | | | 270,000 | |
| Inventories | | 300,000 | | | 405,000 | |
| Total Current Assets | $ | 600,000 | | $ | 810,000 | |
| Net Plant and Equipment | | 4,000,000 | | | 5,400,000 | |
| Total Assets | $ | 4,600,000 | | $ | 6,210,000 | |
| Liabilities and Equity | | | | | | |
| Accounts Payable | $ | 100,000 | | $ | 135,000 | |
| Notes Payable | | 500,000 | | | 675,000 | |
| Accruals | | 100,000 | | | 135,000 | |
| Total Current Liabilities | $ | 700,000 | | $ | 945,000 | |
| Long-term bonds | | 500,000 | | | 675,000 | |
| Total Debt | $ | 1,200,000 | | $ | 1,620,000 | |
| Common Stock | $ | 3,000,000 | | $ | 4,050,000 | |
| Retained Earnings | | 400,000 | | | 540,000 | |
| Total Common Equity | $ | 3,400,000 | | $ | 4,590,000 | |
| Total Liabilities and Equity | $ | 4,600,000 | | $ | 6,210,000 |
