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Case (do at home parts a and b) Ann Cook, financial manager of Great Robin Corp. (GRC) is currently working on the firm's financial forecast for the next year. GRC is currently operating at full capacity and it expects to grow by 20 per- cent in the next year. However, the firm does not plan to increase the dividend per share paid (hence it may allow its dividend payout ratio to decline). The firm's financial statements are given below Sales Cost of goods sold Administrative expenses EBIT Interest expense EBT Taxes (40%) Net income Dividends (30% payout) Addition to RE (in 000s) $7,500 (6,000) (780) 720 (120) 600 (240) 360 108 252 Cash Acc. Rec. Inventories I.S.Ass. 300 500 1,000 1,800 Acc. Payable Accruals Notes Payable Current Liab, 550 200 100 250 Net Fixed A. 4,000 L-t. debt Total debt 2,400 2.950 Common stock Retained earnings Total Liab. & shs' equity 2,000 850 5,800 T. assets 5,800 Given the above a) Calculate the amount of external funds needed using the formula b) Create the first approximation of financial statements using the percentage of sales method and evaluate external funds needed. (Note, for your convenience items that move in line with sales growth are italicized) c) GRC's target capital structure is 50% debt and 50% equity and, therefore, the firm assumes that any additional funds will be raised as 50% long-term debt, and 50% common stock. What dollar amounts of each type of capital are needed to cover the projected cash shortfall? d) Ann Cook predicts that new long-term debt will cost 10% and that new stock could be sold at $10, net per share. Right now GRC has 100,000 common shares outstanding. What impact would the proposed additional financing have on GRC's pro forma financial statements? e) Do second approximation of financial statements reflecting the financial feedback. Case (do at home parts a and b) Ann Cook, financial manager of Great Robin Corp. (GRC) is currently working on the firm's financial forecast for the next year. GRC is currently operating at full capacity and it expects to grow by 20 per- cent in the next year. However, the firm does not plan to increase the dividend per share paid (hence it may allow its dividend payout ratio to decline). The firm's financial statements are given below Sales Cost of goods sold Administrative expenses EBIT Interest expense EBT Taxes (40%) Net income Dividends (30% payout) Addition to RE (in 000s) $7,500 (6,000) (780) 720 (120) 600 (240) 360 108 252 Cash Acc. Rec. Inventories I.S.Ass. 300 500 1,000 1,800 Acc. Payable Accruals Notes Payable Current Liab, 550 200 100 250 Net Fixed A. 4,000 L-t. debt Total debt 2,400 2.950 Common stock Retained earnings Total Liab. & shs' equity 2,000 850 5,800 T. assets 5,800 Given the above a) Calculate the amount of external funds needed using the formula b) Create the first approximation of financial statements using the percentage of sales method and evaluate external funds needed. (Note, for your convenience items that move in line with sales growth are italicized) c) GRC's target capital structure is 50% debt and 50% equity and, therefore, the firm assumes that any additional funds will be raised as 50% long-term debt, and 50% common stock. What dollar amounts of each type of capital are needed to cover the projected cash shortfall? d) Ann Cook predicts that new long-term debt will cost 10% and that new stock could be sold at $10, net per share. Right now GRC has 100,000 common shares outstanding. What impact would the proposed additional financing have on GRC's pro forma financial statements? e) Do second approximation of financial statements reflecting the financial feedback

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