Question
1. Use the balance sheet and income statement provided to prepare a pro forma balance sheet and income statement for the next 3 years, 2016
1. Use the balance sheet and income statement provided to prepare a pro forma balance sheet and income statement for the next 3 years, 2016 to 2018. Make the following assumptions in preparing your financial statements:
The projected growth rate for the next 3 years is 10%
The firm is currently operating at 80% capacity. In 2018, the firm will need to increase its capacity to continue growth. The firm has plans in place to expand its factory and increase capacity by 25%. This will require the firm to increase fixed assets by $750,000. Increasing capacity by only 10% to cover growth for just 2018 is not an option at this time. Depreciation will be constant for the existing fixed assets for the next three years. The new assets will be depreciated straight line over their 10 year expected lifespan.
The firm will be maintaining its current dividend payout policy and investing its remaining net income into the firm to fuel growth as retained earnings. Any additional external financing needed will be made in the long term debt account.
The firm is borrowing long term debt at a 8% interest rate. Interest rates are not expected to change over for this firm over the next 3 years.
Notes Payable will be constant over the next 3 years and pay 5% annual interest.
The corporate tax rate for this firm is 34%.
MSU FI-311 Corporation | |||
2015 Balance Sheets (in $1000) ($ millions) | |||
| 2015 | 2015 | |
Current assets | Current liabilities |
| |
Cash | $150 | Accounts payable | $300 |
Accounts receivable | $500 | Notes payable | $200 |
Inventory | $1,000 | Total | $500 |
Total | $1,650 | Long-term debt | $1,800 |
|
| ||
Fixed assets | Owners' equity |
| |
Net plant and equipment | $2,280 | Common Stock and Paid in Surplus |
|
$600 | |||
| Retained earnings | $1,030 | |
| Total | $1,630 | |
|
| ||
Total assets | $3,930 | Total liabilities and equity | $3,930 |
MSU FI-311 Corporation | |||
2015 Income Statement (in $1000) | |||
| 2015 | ||
Sales | $2,100 | ||
Cost of goods sold | $1,344 | ||
Depreciation | $250 | ||
Earnings before interest and taxes | $506 | ||
Interest paid | $154 | ||
Taxable income | $352 | ||
Taxes | $120 | ||
Net income | $232 | ||
|
| ||
Dividends | $116 | ||
Additions to retained earnings | $116 |
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