1. Problem 6-13

2. Info for 2013 Sales increase by 10% Share outstanding 100K Dividend payout maintain= 2012 (108000/180000=60%) Operating cost/ sales reduce to 87.5% compare –2012 =3279720/3600000=91% Increase Debt to asset ratio to 30% –2012 – D/A =696000/2700000=25% 30% of total debt in 2013 - as note payable and remainder (70%) is long term bond Interest -12.5% Stock price $45

3. Income Statement2012 Sales 3,600,000 Operating cost (incl. depreciation) 3,279,720 EBIT 320,280 (-) Int. Expenses 20,280 EBT 300,000 Tax (40%) 120,000 NI 180,000 Dividend 108,000 Add to RE 72,000 Change2013 (1+g)1.1 87.50% See notes EBT(T)40% NI(Payout)60% 3,960,000 3,465,000 495,000 37,125 457,875 183,150 274,725 164,835 109,890

4. 1. TOTAL ASSETS 2013 Debt to asset ratio =30% Total debt =30%xRM2,970,000 =RM891,000 Calculation on Interest expenses Total Debt (Current + Long Term Liability)RM 891,000 (-) Payble and accrualRM 594,000 297,000 Allocation Bank Loan30% 89,100 12.5% 11,138 Bond70% 207,900 12.5% 25,988 Total Interest Expenses 37,125

5. BALANCE SHEET2012 Assets Cash 180,000 Receivable 360,000 inventory 720,000 Fixed assets (grow with sales) 1,440,000 TOTAL ASSETS 2,700,000 LIABILITY AND EQUITY Payable and accrual 540,000 Short Term bank loan 56,000 Total Current Liability 596,000 Long term bond 100,000 Total Debt 696,000 Common Stock 1,800,000 Retained Earning 204,000 Total Common Equity 2,004,000 TOTAL L + E 2,700,000 Change2013 (1+g)1.1 198,000 (1+g)1.1 396,000 (1+g)1.1 792,000 (1+g)1.1 1,584,000 2,970,000 (1+g)1.1 594,000 See notes 89,100 683,100 See notes 207,900 891,000 See notes 1,756,200 118,800 322,800 2,079,000 2,970,000

6. 2. COMMON STOCK 2013 Target equity ratio =(1-target debt ratio) = (1-0.3)=0.7 Required total equity (2013 TA x target equity ratio) 2,079,000 (-) Retained Earning (2013) 322,800 Required common stock (Req. Total Eq -RE) 1,756,200