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Halifax Brewery, Inc


Halifax Brewery, Inc.

2006 Income Statement

($ in thousands)


Net sales                                               $2500

Cost of goods sold                                   1800

Depreciation                                             180 

Earnings before interest and taxes                      $520

Interest                                                       20  

Taxable Income                                        500

Taxes(35%)                                              175  

Net income                                             $325


Addition to Retained earnings                 $195


Halifax Brewery, Inc.

Balance Sheets as of December 31, 2006

($ in thousands)



Current Assets                                                             

                        Cash                                                                 $80                  

                        Accounts Receivable                                         $100                            

                        Inventory                                                         $600

                                    Total                                                    $780

                        Fixed Assets

                                    Net plant and equipment                                   $1200

                        Total Assets                                                     $1980


Liabilities and equity

Current liabilities

                        Account payable                                                           $450

                        Notes payable                                                       90 

                                    Total                                                    $540

Long-Term debt                                                                       $500

Stockholder’s equity

                        Common stock                                                 $300

                        Retained earnings                                             $640                                                                             Total                                                    $940

Total liabilities                                                             $1980


Assume costs (except for depreciation and interest which remain constant), assets, and accounts payable maintain a constant ratio to sales.


  1. If the firm is operating at full capacity, how much external financing is needed if sales are expected to increase by15% next year and the dividend payout ratio increases by 5%?
  2. Using all of the same assumptions as above, how much external financing would be needed if fixed assets were only at 75% capacity in 2006.
  3. Again referring to part (a) (full capacity), if the company wants to finance any EFN by using long-term debt and equity such that the current debt/equity ratio remains the same, what would the new amount of debt and equity be?

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