Forecasted Statements and Ratios Upton Computers makes bulk purchases of small computers, stocks them in conveniently located
Question:
Forecasted Statements and Ratios
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2015, is shown here (millions of dollars):
Cash | $3.5 | Accounts payable | $9.0 | |
Receivables | 26.0 | Notes payable | 18.0 | |
Inventories | 58.0 | Line of credit | 0 | |
Total current assets | $87.5 | Accruals | 8.5 | |
Net fixed assets | 35.0 | Total current liabilities | $35.5 | |
Mortgage loan | 6.0 | |||
Common stock | 15.0 | |||
Retained earnings | 66.0 | |||
Total assets | $122.5 | Total liabilities and equity | $122.5 |
Sales for 2015 were $300 million and net income for the year was $9 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3.6 million to common stockholders, so its payout ratio was 40%. Its tax rate is 40%, and it operated at full capacity. Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2016. Do not round intermediate calculations.
- If sales are projected to increase by $60 million, or 20%, during 2016, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.$million
- Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.%
- UsetheforecastedfinancialstatementmethodtoforecastUpton'sbalancesheetforDecember31,2016.Assumethatalladditionalexternalcapitalisraisedasalineofcreditattheendoftheyearandisreflected(becausethedebtisaddedattheendoftheyear,therewillbenoadditionalinterestexpenseduetothenewdebt).AssumeUpton'sprofitmarginanddividendpayoutratiowillbethesamein2016astheywerein2015.Whatistheamountofthelineofcreditreportedonthe2016forecastedbalancesheets?(Hint:Youdon'tneedtoforecasttheincomestatementsbecauseyouaregiventheprojectedsales,profitmargin,anddividendpayoutratio;thesefiguresallowyoutocalculatethe2016additiontoretainedearningsforthebalancesheet.)Roundyouranswerstotwodecimalplaces.Enteryouranswerinmillions.Forexample,ananswerof$1.2millionshouldbeenteredas1.2,not1,200,000.
UptonComputers ProFormaBalanceSheet December31,2016 (MillionsofDollars) Cash $ Receivables $ Inventories $ Totalcurrentassets $ Netfixedassets $ Totalassets $ Accountspayable $ Notespayable $ Accruals $ Totalcurrentliabilities $ Mortgageloan $ Commonstock $ Retainedearnings $ Totalliabilitiesandequity $