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g. Repeat the analysis performed the previous question but now assume that Hatfield is able to improve the following inputs: operating costs (excluding depreciation)/sales =
| g. Repeat the analysis performed the previous question but now assume that Hatfield is able to improve the following inputs: operating costs (excluding depreciation)/sales = 89.5% and inventories/sales = 16%. This is the Improve scenario. |
| Improve | ||||||
| 1. Balance Sheets | Most Recent | Forecast | ||||
| 2013 | Input | Basis for 2014 Forecast | 2014 | |||
| Assets | ||||||
| Cash | $20.0 | 1.00% | 2014 Sales | $22.00 | ||
| Accts. rec. | 280.0 | 14.00% | 2014 Sales | $308.00 | ||
| Inventories | 400.0 | 16.00% | 2014 Sales | $352.00 | ||
| Total CA | $700.0 | $682.00 | ||||
| Net fixed assets | 500.0 | 25.00% | 2014 Sales | $550.00 | ||
| Total assets | $1,200.0 | $1,232.00 | ||||
| Liabilities and equity | ||||||
| Accts. pay. & accruals | $80.0 | 4.00% | 2014 Sales | $88.00 | ||
| Line of credit | 0.0 | Draw on LOC if financing deficit | $0.00 | |||
| Total CL | $80.0 | $88.00 | ||||
| Long-term debt | 500.0 | Carry over from previous year | $500.00 | |||
| Total liabilities | $580.0 | $588.00 | ||||
| Common stock | 420.0 | Carry over from previous year | $420.00 | |||
| Retained earnings | 200.0 | Old RE + Add. to RE | $224 | |||
| Total common equity | $620.0 | $644 | ||||
| Total liabs. & equity | $1,200.0 | $1,232 | ||||
| Check: TA Total Liab. & Eq. = | $0.00 | |||||
| 2. Income Statement | Most Recent | Forecast | ||||
| 2013 | Input | Basis for 2014 Forecast | 2014 | |||
| Sales | $2,000.0 | 110% | 2013 Sales | $2,200.00 | ||
| Op. costs (excl. depr.) | 1,800.0 | 89.50% | 2014 Sales | $1,969.00 | ||
| Depreciation | 50.0 | 10.00% | 2014 Net PP&E | $55.00 | ||
| EBIT | $150.0 | $176.00 | ||||
| Less: Interest on LTD | 40.0 | 8.00% | Avg bonds | $40.00 | ||
| Interest on LOC | 0.0 | 8.00% | Beginning LOC | $0.00 | ||
| Pretax earnings | $110.0 | $136.00 | ||||
| Taxes (40%) | 44.0 | 40.00% | Pretax earnings | $54.40 | ||
| Net income | $66.0 | $81.60 | ||||
| Regular common dividends | $20.0 | 110% | 2013 Dividend | $22.00 | ||
| Special dividends | $0.0 | Pay if financing surplus | $35.60 | |||
| Addition to RE | $46.0 | Net income Dividends | $24.00 | |||
| 3. Elimination of the Financial Deficit or Surplus | ||||||
| Increase in spontaneous liabilities (accounts payable and accruals) | $8.00 | |||||
| + Increase in long-term debt and common stock | $0.00 | |||||
| Previous line of credit | $0.00 | |||||
| + Net income minus regular common dividends | $59.60 | |||||
| Increase in financing | $67.60 | |||||
| Increase in total assets | $32.00 | |||||
| Amount of deficit or surplus financing: | $35.60 | |||||
| If deficit in financing (negative), draw on line of credit | Line of credit | $0.00 | ||||
| If surplus in financing (positive), pay special dividend | Special dividend | $35.60 | ||||
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