It is now January 2018. The year 2017 finished well. The finalized year-end financial statements for 2017 are provided in the excel file associated with this assignment.

Randolf and Tenisa at Comfy Home would like the accountant to prepare pro-forma financial statements for 2018 based on an optimistic sales forecast. Tenisa has won the business of a large corporate client and the couple believe that Comfy Home revenues will increase by 30% in 2018 as compared with the year 2017.

Using the actual financial statements for 2017 (in the excel file with this assignment), please prepare a pro-forma balance sheet and income statement for 2018 using the percent of sales method. For any financial statement line items where no additional information is provided to indicate otherwise, assume the line item changes proportionally to sales. Note: Please use excel formulas for all calculations and do not round any intermediate steps. If you round during intermediate steps, you may get rounding errors resulting in incorrect answers.

Randolf and Tenisa provide the following additional information to the accountant to prepare the pro-forma statements:

• No new investments in furniture and fixtures or buildings and property are expected for 2018.
• Of the $540,000 in building and properties at year-end 2017, $365,000 represents buildings and $175,000 represents property (land). The buildings are being depreciated straight-line over 10 years with no salvage value.
• The furniture and fixtures are being depreciated straight-line over 15 years with no salvage value.
• The $45,000 current portion of the bank loan will be paid on December 31, 2018. Of the $255,000 in long term debt, another $45,000 comes due on December 31, 2019.
• Comfy Home does not plan to obtain any additional loans in 2018.
• The interest rate for Comfy Homes borrowing has declined recently to 6%. It is expected to be the average rate of interest for Comfy Home short and long-term borrowings in 2018. Use total beginning borrowings to estimate the interest expense for 2018.
• Comfy Home's expected tax rate is 25%. Comfy Home has no outstanding deferred tax assets or deferred tax liabilities.
• Comfy Home is planning a $50,000 cash disbursement to its owners on 12/31/2018. No contributions to owners equity are foreseen.
• Comfy Homes insurance premium covers its buildings and property as well as liability and is not expected to increase in 2018.
• Use Cash as the plug in the pro-forma financial statements.

17.

Comfy Home is considering investing in a new shop location. The decorating and installation of the shop including staff training will cost $30,000 upfront. The investment will generate the net cash flows below over the next 10 years. Comfy Homes discount rate is 9%.

What is the internal rate of return of this investment?

Use a spreadsheet to calculate your answer. Enter your answer as a percent (for example, for 7%, enter '7')

Cash Flows:

Year 0 $(30,000) (year of investment)

Year 1 $2,000

Year 2 $2,000

Year 3 $3500

Year 4 $3,500

Year 5 $3,500

Year 6 $4,500

Year 7 $4,150

Year 8 $5,000

Year 9 $5,000

Year 10 $5,000

S $ $ S S COMFY HOME COMPANY Balance Sheet As of December 31, 2016 Current Assets: Current Liabilities: Cash 110,000 Accounts Payable 90,000 Accounts receivable S 140,000 Salaries and wages payable 20,000 Inventories S 310,000 Current portion of bank loan $ 45,000 Prepaid expenses $ 25,000 Deferred revenue $ 15,000 Total Current Assets $ 585,000 Total Current Liabilities $ 170,000 Non-Current Assets: Non-Current Liabilities: Furniture and fixtures 120,000 Bank Loan $ 300,000 Buildings and property 450,000 Total Non-Current Liabilities $ 300,000 (Accumulated Depreciations (154,000) Total Non-Current Ass $ 416,000 Owners' Equity: Contributed Capital $ 250,000 Retained earnings $ 281,000 Total Equity $ 531,000 Total Assets $ 1,001,000 Total Liabilities and Owners' $ 1,001,000 COMFY HOME COMPANY COMFY HOME COMPANY Balance Sheet Income Statement As of December 31, 2017 For the year ending December 31, 2017 Current Assets: Current Liabilities: Total Revenue $ 1,602,000 Cash s 143,000 Accounts Payable $ 196,000 Cost of Goods Sol $ 985,000 Accounts receivable $ 178,000 Salaries and wages payable $ 30,000 Gross Profit $ 617,000 Inventories $ 358,000 Current portion of bank loan 45,000 Salaries and wages $ 199,000 Prepaid expenses $ 33,000 Deferred revenue 18,000 Marketing expense $ 46,000 Total Current Assets 712,000 Total Current Liabilities 289,000 Selling, General, a $ 98,000 Insurance expense $ 48,000 Non-Current Assets: Non-Current Liabilities: Depreciation exper $ 44,000 Furniture and fixtures S 150,000 Bank Loan $ 255,000 Operating Profit $ 182,000 Buildings and property 540,000 Total Non-Current Liabilities $ 255,000 Interest expense $ 30,000 (Accumulated Depreciations (198,000) Taxes $ 33,000 Total Non-Current Ass $ 492,000 Owners' Equity: Net Income $ 119,000 Contributed Capital 260,000 Retained earnings 400,000 Total Equity $ 660,000 Total Assets 1,204,000 Total Liabilities and Owners' $ 1,204,000 $ $ $ S $ $ $ S $ $ S S COMFY HOME COMPANY Balance Sheet As of December 31, 2016 Current Assets: Current Liabilities: Cash 110,000 Accounts Payable 90,000 Accounts receivable S 140,000 Salaries and wages payable 20,000 Inventories S 310,000 Current portion of bank loan $ 45,000 Prepaid expenses $ 25,000 Deferred revenue $ 15,000 Total Current Assets $ 585,000 Total Current Liabilities $ 170,000 Non-Current Assets: Non-Current Liabilities: Furniture and fixtures 120,000 Bank Loan $ 300,000 Buildings and property 450,000 Total Non-Current Liabilities $ 300,000 (Accumulated Depreciations (154,000) Total Non-Current Ass $ 416,000 Owners' Equity: Contributed Capital $ 250,000 Retained earnings $ 281,000 Total Equity $ 531,000 Total Assets $ 1,001,000 Total Liabilities and Owners' $ 1,001,000 COMFY HOME COMPANY COMFY HOME COMPANY Balance Sheet Income Statement As of December 31, 2017 For the year ending December 31, 2017 Current Assets: Current Liabilities: Total Revenue $ 1,602,000 Cash s 143,000 Accounts Payable $ 196,000 Cost of Goods Sol $ 985,000 Accounts receivable $ 178,000 Salaries and wages payable $ 30,000 Gross Profit $ 617,000 Inventories $ 358,000 Current portion of bank loan 45,000 Salaries and wages $ 199,000 Prepaid expenses $ 33,000 Deferred revenue 18,000 Marketing expense $ 46,000 Total Current Assets 712,000 Total Current Liabilities 289,000 Selling, General, a $ 98,000 Insurance expense $ 48,000 Non-Current Assets: Non-Current Liabilities: Depreciation exper $ 44,000 Furniture and fixtures S 150,000 Bank Loan $ 255,000 Operating Profit $ 182,000 Buildings and property 540,000 Total Non-Current Liabilities $ 255,000 Interest expense $ 30,000 (Accumulated Depreciations (198,000) Taxes $ 33,000 Total Non-Current Ass $ 492,000 Owners' Equity: Net Income $ 119,000 Contributed Capital 260,000 Retained earnings 400,000 Total Equity $ 660,000 Total Assets 1,204,000 Total Liabilities and Owners' $ 1,204,000 $ $ $ S $ $ $