Question
How much will Mr. Butler need to borrow from the bank to finance his expected expansion in sales? Forecasted sales for year 1991 is $3600
How much will Mr. Butler need to borrow from the bank to finance his expected expansion in sales?
Forecasted sales for year 1991 is $3600 (in thousands). You will use the given forecasted as your next years sales. (I.e., estimate LOC under two different scenarios.)
To answer question 2, forecast the financial statements under two scenarios.
Forecast 1- Assume that firm will not issue any long-term debt or equity, estimate notes payable to the bank (LOC, line of credit) in 1991. (Using forecasted statements method and excel solver function as we did in class).
Forecast 2- Assume firm issues $35 (thousands) in long-term debt and $25 (thousands) in equity, estimate notes payable to the bank (LOC, line of credit) in 1991.
Forecast 1 | Forecast 2 | ||
Balance Sheet | 1991 Forecasted | 1991 Forecasted | |
Cash | 55 | 55 | |
Accounts receivable, net | 424 | 424 | |
Inventory | 559 | 559 | |
Current assets | 1,037 | 1,037 | |
Property, net | 210 | 210 | |
Total assets | 1,247 | 1,247 | |
Notes payable, bank | 398 | 336 | |
Notes Payable, trade | NA | NA | |
Acc. payable | 342 | 342 | |
Accruals | 52 | 52 | |
Long-term debt, current portion | 7 | 7 | |
Current liabilities | 800 | 737 | |
Long-term debt | 50 | 85 | |
Total liabilities | 850 | 822 | |
Net worth | 397 | 424 | |
Total liabilities and net worth | 1,247 | 1,247 | |
Forecast 1 | Forecast 2 | ||
Income statement | 1991 Forecasted | 1991 Forecasted | |
Net sales | $3,600 | $3,600 | |
COGS | 2606 | 2606 | |
Operating expense (b) | 879 | 879 | |
EBIT | 115 | 115 | |
Interest expense | 49 | 46 | |
Net income before taxes | $66 | $69 | |
Provision for income taxes (25%) | 16 | 17 | |
Net income | $49 | $51 |
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