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Last year s balance sheet and income statement for the Lewis Company are shown below. The firm operated at full capacity. It expects sales to
Last years balance sheet and income statement for the Lewis Company are shown below. The firm operated at full capacity. It expects sales to increase by percent during this year and expects this years dividends per share to increase to $
a Use percent of sales method ie constant ratio method to determine how much outside financing is required, by developing the firms pro forma balance sheet and income statement, and using the AFN additional funds needed as the balancing item. This means that the AFN Equation should not be used in answering this part of the problem.
b If the firm must maintain a current ratio of and a total liabilities to total assets ratio of percent, how much financing will be obtained using notes payable, longterm debt, and common stock?
Balance Sheet Income Statement
Cash Sales
Accounts receivable Operating costs
Inventory EBIT
Net fixed assets Interest expense
Total assets EBT
Taxes @
Accounts payable Net income
Notes payable
Accruals Per Share Data
Longterm debt Share price
Common stocks Earnings per share EPS
Retained earnings Dividends per share DPS
Total liabilities and equity
Pro Forma Income Statement
Sales, cost and other variable accounts are expected to increase by
Taxes remain
New Value Old ValueGrowthRate
Item Current Amount Growth Rate Pro Forma Amount
sales $ $
Operating Costs $ $
EBIT $ $
Interest Expense $ $
EBT $ $
Taxes @ $ $
Net Income $ $
b Total Assets $
Total Liabilities and Equity $
Current assets
Accounts receivable Inventory
Total current assets
Current Liabilities
Accounts payable
Notes payable
Accruals
Total current liabilities
Long term debt
Equity:
Common stock
Retained earnings
Total Liabilities and equity:
Total Liabilities
Total equity
AFN Additional Funds Needed Total Assets Pro Forma Total Liabilities and Equity Pro Forma
$ $
$
To maintain the specified financial ratios:
Current ratio: To achieve current ratio current assets and liabilities must be adjusted accordingly
Total Liabilities to Total assets ratio: The target is which would imply total liabilities of $ $
$ more in funding will be needed by The Lewis Company to support a increase in sales. This means that the mix of notes payable, longterm debt, and equity financing may need to be adjusted in order to maintain a current ratio of and a total liability to total assets ratio of Financial structure modifications should secure the necessary funding for expansion while guaranteeing adherence to these financial health metrics.
Is this correcct
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