Question
1. Stirbucks Corporation is projecting 18% sales growth for 2020. Use the 2019 income statement below to prepare a pro-forma income statement for 2020. Assume
1. Stirbucks Corporation is projecting 18% sales growth for 2020. Use the 2019 income statement below to prepare a pro-forma income statement for 2020. Assume that all costs vary with sales and that the firm has a constant dividend payout ratio. Indicate the projected addition to retained earnings.
Stirbucks Income statement 2019 | |
Sales | $250,000 |
Costs | $165,000 |
Taxable income | $85,000 |
Taxes (34%) | $28,900 |
Net income | $56,100 |
Dividends | $25,000 |
Addition to R/E | $31,100 |
2. Use the income statement above (to account for retained earnings) and the balance sheet below to prepare a proforma balance sheet for Stirbucks Corporation based on the same 18% increase in sales growth for 2020. Assume that all asset accounts and accounts payable increase with sales. We would not expect any change in any of the other accounts.
a. Calculate external financing needed (EFN), if any, for 2020.
b. Indicate possible sources of financing (i.e. what accounts on the balance sheet would change to account for this extra financing?).
Stirbucks Balance Sheet 2019 | |||
Assets | Liabilities & Owners' equity | ||
Current assets | Current liabilities | ||
Cash | $27,500 | Accounts payable | $12,000 |
A/Receivable | $52,000 | Notes payable | $38,000 |
Inventory | $61,500 |
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Total c. assets | $141,000 | Total current liabilities | $50,000 |
Fixed assets |
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Net PPE | $180,000 | Long-term debt | $135,000 |
Owners' equity |
| ||
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| Common stock | $120,000 |
Retained earnings | $16,000 | ||
|
| Total equity | $136,000 |
Total assets | $321,000 | Total Liabilities & equity | $321,000 |
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