The most recent financial statements for CorpFin Sdn Bhd., follow. Sales for 2011 are projected to grow by 12 percent.
Income Statement for the year ended December 31, 2010
Earnings Before Interest and Tax
Addition to Retained Earnings
Balance Sheet as at December 31 2010
Net Fixed Assets
Net Working Capital
Net Total Assets
Ordinary shares and paid-in surplus
Long-term debt and equity
i. Calculate the internal rate and sustainable growth rate for CorpFin Sdn Bhd. What do these numbers mean?
10 marks ii. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company’s sales increase at 12 percent growth rate as forecast?
12 marks iii. Appropriate the EFN into the short term and long term financial requirements 5 marks
iv. What would be your answer assuming the firm is operating at 80% of full capacity?
2marks v. Assuming the firm increases its net fixed assets by RM400,000, what would be the new EFN?
i. Internal Growth Rate (IGR)
IGR = ROA x b
1-(ROA x b)
ROA = Net Income/Total Asset
0.08x0.641-0.08 x 0.64
Sustainable Growth Rate (SGR)
SGR = ROE x b
1-(ROE x b)
ROE = Net Income/Total Equity
0.15x0.641-0.15 x 0.64
Liabilities and Stockholders’ Equity
RM 995,680 Accounts receivables 793,408
Total current assets RM2,448,902.40
Total current liabilities RM3,025,680
Net fixed assets
Long- term debt
Add to Retained earnings
$20,506,091.40 Total liabilities and equity $19,610,320
EFN =RM 895,670.40
iii. Change in Working Capital
= Change in Current Asset – Change in Current Liability
= RM262,382.40 – RM133,680 = RM 128,702.40
= EFN – Change in Working Capital = Long term EFN
RM895,670.40 – RM128,702.40 = RM 766,968.
iv. 0.80 Full capacity = RM30,499,000
FC sales = RM30,499,000/0.8
Since sales at 12% growth is RM 34,158,880 and lesser than sales at full capacity value at RM30,499,000/0.8, the increase in the Fixed assets requirement may not be necessary. Therefore, the Total Asset should be RM18,571,302. EFN = RM18,571,302.4 – RM19,610,320 = - RM 1, 039,017.60
The company should pay more dividends and retain RM 155,702.40
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