Katies Construction provides general contractor services and infrastructure services. From its inception until 2 years ago, the company had a steady record of growth in sales, assets, and profits. During the second half of 2006 the company experienced a drop in demand for its services. 2007 continued to be a poor year and, despite intense marketing efforts that included high discounts and extended credit, sales barely increased. Inventories ballooned and the companys payments to suppliers slowed considerably.

However, in January 2008, Katie and her finance manager were reviewing the prospects for 2008. Katie anticipated a surge in demand for construction services in the coming years. She felt that her facilities needed to be expanded in order to meet future demand. She anticipated that if steps were initiated immediately, the expansion program could be completed by the middle of 2008. By then, the companys bulging inventories could be brought down. In order to finance the expansion, she proposed to obtain a $1 million loan from the companys bank. She instructed her finance manager to prepare a forecast for 2008 EXCLUDING the expansion plan. The projections for 2008 in the data below already assume the following:

o Increase in sales and cost of goods sold10%

o Selling and administrative expenses11% of sales

o Average collection period45 days

o Inventory (days sales) 72 days

o Accounts payable75% of the 2007

Part - A. In an Excel spreadsheet, common size the attached data for 2006, 2007 and 2008 projections for the:

a. Income statement

b. Balance sheet

Part - B.Calculate case ratios for 2006, 2007 and 2008.

Including the following:

Quick ratio

Current Ratio

Inventory Turnover

Average Collection Period

Return on Equity

Debt to total assets (Debt Ratio)

Times Interest earned

Income Statements Thousands of Dollars Katie's Construction Peer Com. Size 2006 2007 Net Sales Cost of goods sold Gross Profit 81,950 66,000 15,950 83,875 70,950 12,925 Proj. 2008 101,488.75 85,849.5 15,639.25 100.00 S & A Expenses Depreciation Operating Profit 8,360 1,100 6,490 9,997.9 902 2,025.1 11,163.762 3,430.488 1,125.3 2,305.188 775.5 Interest Expense Pre-Tax Profit 1,322.2 702.9 1,942.93 3,771.57 238.986 463.914 783.764 1,521.424 After Tax profit Dividends Retained Earnings 165 298.914 660 861.424 2,394.37 No. of Shares Stock Price/Share 1,450 1,450 1,450 Balance Sheets housands of Dollars Katie's Construction Peer Com. Size 2006 Proj. 2008 1,760 1,427.8 13,200 20,900 35,527.8 1,760 Accounts Receivable Inventory Total Current Assets 14,609.1 24,509.1 15,381.3 28,691.3 7,156.6 42,684.4 6,832.1 Net Fixed Assets Total Assets 8,760.4 37,451.7 Accounts Payable Notes Payable Accruals Total Current Liabilities 4,620 2,256.1 2,255 8,800 8,250 3,242.8 20,292.8 4,290 3,567.08 14,457.08 5,380.1 Long Term Debt Total Liabilities 5,262.4 25,555.2 5,148.704 19,605.784 16,830 31,341.2 17,129.2 42,684.4 17,845.916 Common Equity Total Liabilities & Equity