How calculating the guesses and the interest expense and Lonf term debt? Key Graphics expects to finish
Question:
How calculating the guesses and the interest expense and Lonf term debt?
Key Graphics expects to finish the current year with the financial results indicated on the worksheet given below. Develop next year's income statement and ending balance sheetand statement of cash flows using that information and the following planning assumptions and facts. Note that due to an economic slowdown, Key Graphics is expecting a ten percent reduction in revenue. It is attempting to cut expenditures by an even greater percentage, resulting in a larger net profit. Work to the nearest thousand dollars.
PLANNING ASSUMPTIONS AND FACT
Income Statement Items
1.
Revenue declines by 10%.
2.
The cost ratio will improve by 3%.
3.
Spending in the Marketing Department will be held to 22% of revenue.
4.
Engineering and Overhead expenses will be cut by 15%.
5.
The combined state and federal income tax rate will be 40%
6.
Interest on all borrowing will be 9 percent.
7.
Interest expenses are based on 1/2 of the prior year's long-term debt and 1/2 of the current year's long-term debt.)
Balance Sheet Items
1.
Cash balances will remain constant.
2.
The ACP will be 30 days. (Use ending balances.)
3.
The inventory turnover ratio will be 4 times. (Use ending balances.)
4.
Capital spending is expected to be $6.0M. The average depreciation life of the assets to be acquired is 5 years and straight-line depreciation is used. Old assets will deprecation by $1,700,000.
5.
Accounts payable is expected to be 40% of inventory.
6.
Accruals will rise by $10,000
7.
$1,500,000 of dividends will be paid.
8.
There are no stock splits.
hics
Income Statement
($000)
THIS
YEAR
NEXT
YEAR
$
%
$
%
Revenues
$18,000
100.0
Less: Cost of Goods Sold
7,500
42.0
Gross Margin
$10,440
58.0
Expenses
Marketing
$4,100
22.8
Engineering
1,400
Overhead
1,500
Total Expenses
7,000
EBIT
$3,440
19.1
Less: Interest Expense
500
2.8
EBT
$2,940
Less: Income Tax
1,176
6.5
EAT
$1,764
9.8
Key Graphics
Balance Sheet
($000)
ASSETS
LIABILITIES AND EQUITY
This Year
Next Year
This Year
Next Year
Cash
$1,200
Accounts Payable
$400
Accts, Receivable
2,000
Accruals
180
Inventory
2,400
Current Liabilities
$580
Current Assets
$5,600
Gross Fixed Assets
$13,000
Long-Term Debt
$4,575
Less: Acc. Deprec.
4,800
Equity
8,645
Net Fixed Assets
$8,200
Total Capital
$13,220
Total Assets
$13,800
Total Liab.& Equity
$13,800
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