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Question
Hogan Inc. generated EBIT of $240,000 this past year using assets of $1,100,000. The interest rate on its existing long-term debt of $640,000 is 12.5 percent and the firm's tax rate is 40 percent. The firm paid a dividend of $1.27 on each of its 37,800 shares outstanding from net income of $96,000. The total book value of equity is $446,364 of which the common stock account equals $335,000. The firm's shares sell for $28.00 per share in the market. The firm forecasts a 10% increase in sales, assets, and EBIT next year, and a dividend of $1.40 per share. If the firm needs additional capital funds, it will raise 60% with debt and 40% with equity. The cost of any new debt will be 13%. Spontaneous liabilities are estimated at $15,000 for next year, representing an increase of 10% over this year. Except for spontaneous liabilities, the firm uses no other sources of current liabilities and will continue this policy in the future. What will be the cumulative AFN Hogan will need to balance its projected balance sheet using the projected balance sheet method through the first two passes?
a. $5,013
b. $3,417
c. $51,156
d. $26,228
e. $54,573
Answer
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