Let's break down each part of the question and solve them step by step. --- ## **Given Data (From Balance Sheet in Millions)** | | 2023 | 2024 | |-------------------|--------|--------| | Current Assets | 580. | 676. | | Net Fixed Assets | 2,340.| 2,286.4| | **Total Assets** | 2,920.| 2,962.4| | Current Liabilities| 950. | 980. | | Long-term Debt | 650. | 635. | | Common Stock & Paid-in Capital | 637. | 639.4 | | Retained Earnings | 683. | 708. | | **Total Liabilities and Equity** | 2,920. | 2,962.4 | --- ## **Part (a): Cash Flow to Creditors and Stockholders (2024)** ### **1. Cash Flow to Creditors** Cash flow to creditors = Interest paid - Net new borrowing But we are only given long-term debt, and not interest paid directly. Since interest expense is given as **$45.86 million** (from the question), and long-term debt decreased: - Net new borrowing = Ending long-term debt - Beginning long-term debt = $635. - $650. = **-$15. million** (Negative sign means debt was paid off, not borrowed) **Cash Flow to Creditors:** \[ \text{Cash Flow to Creditors} = \text{Interest Paid} - \text{Net New Borrowing} \] \[ = \$45.86 - (-\$15.) = \$45.86 + \$15. = \$60.86\ \text{million} \] --- ### **2. Cash Flow to Stockholders** Cash flow to stockholders = Dividends paid - Net new equity raised - Net new equity = (Common Stock & Paid-in Capital in 2024) - (in 2023) = $639.4 - $637. = **$2.4 million** - Retained earnings increased from $683. to $708. million: - Change in retained earnings = $708. - $683. = **$25. million** - Net income for 2024 is not given directly, but you can use the change in retained earnings plus dividends paid to estimate it if you had dividends. But dividend payout is not directly stated. - However, since dividend payout ratio is mentioned as **maintained** (from question, though specific number not given), let's use the change in retained earnings to estimate: If we assume all net income not paid out as dividends is retained: \[ \text{Net Income} = \text{Change in Retained Earnings} + \text{Dividends Paid} \] But we do not have net income or dividends explicitly. Since cash flow to stockholders is **Dividends paid - Net new equity raised**, and if we do not have dividends, we'll need more info (provided on next page, perhaps). **For now, with available data:** \[ \text{Net new equity} = \$2.4\ \text{million} \] If you had dividends, cash flow to stockholders = Dividends paid - $2.4$ million. --- ## **Part (b): External Funds Needed (EFN) for 2025 (Pro Forma Statement Approach)** We are told to use the **percentage of sales** method: - Assume all asset and liability ratios to sales remain constant. - Dividend payout ratio is maintained. - Projected sales growth for 2025 = **10%** #### **Step 1: Calculate Sales Growth** If 2024 sales = $X$, then 2025 sales = $X \times 1.10$ #### **Step 2: Calculate Increase in Assets** - **Current Assets (2024)**: $676.$ - **Net Fixed Assets (2024)**: $2,286.4$ - **Total Assets (2024)**: $2,962.4$ - Total assets will increase by 10% (proportional to sales): \[ \text{Increase in assets} = 10\% \times \$2,962.4 = \$296.24\ \text{million} \] #### **Step 3: Increase in Spontaneous Liabilities** - **Current Liabilities (2024)**: $980.$ - Increase = $980. \times 10\% = \$98.$ million #### **Step 4: Addition to Retained Earnings** - Use net income and payout ratio, but we don’t have net income or payout ratio directly. Let's assume the change in retained earnings from 2023 to 2024 is representative for 2025. - Change in retained earnings (from 2023 to 2024): $708. - 683. = \$25.$ million - If sales grow by 10%, retained earnings for 2025 could increase by 10%: \[ \text{Addition to retained earnings} = \$25. \times 1.10 = \$27.5\ \text{million} \] #### **Step 5: Calculate EFN** \[ \text{EFN} = (\text{Increase in assets}) - (\text{Increase in spontaneous liabilities}) - (\text{Addition to retained earnings}) \] \[ = \$296.24 - \$98. - \$27.5 = \$170.74\ \text{million} \] --- ## **Part (c): Maximum Growth Rate for 2025 (without external capital)** - This is the **sustainable growth rate** (SGR), given by: \[ \text{SGR} = \frac{\text{ROE} \times \text{Retention Ratio}}{1 - (\text{ROE} \times \text{Retention Ratio})} \] - Retention ratio = 1 - Dividend payout ratio We need net income and dividends to calculate ROE and retention ratio, but with the given data, we can estimate: - **ROE (Return on Equity)** = Net Income / Equity - **Equity (2024)** = Common Stock & Paid-in Capital + Retained Earnings = $639.4 + 708. = $1,347.4$ million - Change in retained earnings = $25.$ million (assuming this is retained net income). - If payout ratio is constant, and change in retained earnings is 25 million, net income can be estimated if payout ratio is known. **If you had more info (e.g., net income, payout ratio), you could plug into formula.** --- ## **Summary Table** | Part | Calculation | Value | |------|-------------|-------| | (a) Cash Flow to Creditors | $45.86 + 15.$ | **$60.86$ million** | | (a) Cash Flow to Stockholders | Dividends paid - $2.4$ | Need more info | | (b) EFN for 2025 | $296.24 - 98. - 27.5$ | **$170.74$ million** | | (c) Max Growth Rate | SGR formula | Need more info | --- ### **If you have more information (like net income and dividend payout ratio), I can help you fill in the rest!** --- **Let me know if you want to go deeper into any part or clarify with more data!**