Based on the following information for the Skandia Mining Company, what is EFN if sales are predicted to grow by 10 percent? Use the percentage of sales approach and assume the company is operating at full capacity.
The payout ratio is constant.

Question

SKANDIA MINING COMPANY Financial Statements
Income Statement		Balance Sheet
		Assets		Liabilities and Owners’ Equity
Sales	$4,250.0	Current assets	$ 900.0	Current liabilities	$ 500.0
Costs	3,875.0	Net fixed assets	2,200.0	Long-term debt	1,800.0
Taxable income	$ 375.0	Total	[latex]\underline{\underline{\$3,100.0}}[/latex]	Owners’ equity	800.0
Taxes (34%)	127.5			Total liabilities and owners’ equity	[latex]\underline{\underline{\$3,100.0}}[/latex]
Net income	[latex]\underline{\underline{\$ 247.5}}[/latex]
Dividends	$ 82.6
Addition to retained earnings	164.9

Accepted Answer

We can calculate EFN by preparing the pro forma statements using the percentage of sales approach. Note that sales are forecasted to be $4,250 × 1.10 = $4,675.

SKANDIA MINING COMPANY Pro Forma Financial Statements Income Statement
Sales			$4,675.0	Forecast
Costs			4,262.7	91.18% of sales
Taxable income			$ 412.3
Taxes (34%)			140.2
Net income			[latex]\underline{\underline{\$ 272.1}}[/latex]
Dividends			$ 90.8	33.37% of net income
Addition to retained earnings			181.3
Balance Sheet
Assets			Liabilities and Owners’ Equity
Current assets	$ 990.0	21.18%	Current liabilities	$ 550	11.76%
Net fixed assets	2,420.0	51.76%	Long-term debt	1,800.0	n/a
Total assets	[latex]\underline{\underline{\$3,410.0}}[/latex]	[latex]\underline{\underline{72.94\%}}[/latex]	Owners’ equity	981.3	n/a
			Total liabilities and owners’ equity	$3,331.3	n/a
			EFN	[latex]\underline{\underline{\$ 78.7}}[/latex]	[latex]\underline{\underline{n/a}}[/latex]

Question 4CRS-TP1: Based on the following information for the Skandia Mining Co...

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