Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31,
Question:
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
Cash$180,000
Accounts payable$360,000
Receivables360,000
Notes payable156,000
Inventories720,000
Line of credit 0
Total current assets$1,260,000
Accruals180,000
Fixed assets1,440,000
Total current liabilities$696,000
Common stock1,800,000
Retained earnings204,000
Total assets$2,700,000
Total liabilities and equity $2,700,000
Income Statement for December 31, 2016
Sales$3,600,000
Operating costs3,279,720
EBIT$320,280
Interest18,280
Pre-tax earnings$302,000
Taxes (40%)120,800
Net income181,200
Dividends$108,000
Suppose that in 2017 sales increase by 10% over 2016 sales and that 2017 dividends will increase to $194,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 9%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year)
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