Question
Percent of Sales Technique Homework XYZ Company Income Statement For the Year Ended 12/31/xxxx Sales $140,000 Cost of Goods Sold 117,000 Gross Profit 23,000 Operating
Percent of Sales Technique Homework
XYZ Company Income Statement For the Year Ended 12/31/xxxx
Sales $140,000
Cost of Goods Sold 117,000
Gross Profit 23,000
Operating Expenses 12,830
EBIT 10,170
Interest Expense 4,610
EBT 5,560
Taxes @ 39% 2,168
Net Income 3,392
Dividend 1,018
Addition to Retained Earnings $2,374
XYZ Company Balance Sheet 12/31/xxxx
Assets
Current Assets
Cash $7,500
Accounts Receivable 12,100
Inventory 10,400
Prepaid Items 5,900
Other CA 4,300
Total Current Assets $40,200
Net Plant & Equipment 82,300
Total Assets $122,500
Liabilities & Equity
Current Liabilities
Accounts Payable $7,200
Wages Payable 3,600
Notes Payable 5,400
Taxes Payable 4,200
Total Current Liabilities $20,400
Long Term Debt 35,700
Total Liabilities $56,100
Common Stock 28,700
Retained Earnings 37,700
Total Liabilities & Equity $122,500
Homework Problem, contd
The projected sales for the forecast period is $165,000. Assume that the existing profit margin and payout ratio will be maintained in the forecast period. The firm estimates that additional net fixed asset investment of $18,000 will be required during the forecast period. Assume that all current assets are spontaneous except Other Current Assets which is assumed not to change. Assume that all current liabilities except Notes Payable are spontaneous.
A. Prepare the pro forma Balance Sheet and pro forma Income Statement. The EFR will be a plug number that makes the balance sheet balance like in the class example.
B. Using the existing financial statements as your basis, estimate firm XYZs EFR for the forecast period again, but this time using the cookbook model. Also based on the cookbook equation, how much funding is expected to come from each of the internal sources of funds (change in SL and retained earnings). If firm XYZ must maintain a minimum current ratio of 1.8 and a maximum debt ratio of 0.50, how would you propose the EFR be financed (how much short term debt, long term debt, and equity)?
C. Based on your results in part B, prepare a Pro Forma Sources and Uses of Funds Statement to reflect the financing allocations that you decided on in part B. The only format change required is to break the total EFR down into the amounts of short term debt, long term debt, and new equity. You will have to use the numbers for CA, SL, addition to R.E., and EFR that you calculated in part B to make it balance, since they may be slightly different than those from part A. Explain the basis for your financing allocations.
Answers to verify : Pro forma EFR = $18,589
Cookbook EFR = $18,941
Financinf plan with constraints at their limits
Additional notes payable : $2,820
Additional LTD : $11,861
Additional Equity : $4,260
a more conservative plan would use less debt, more equity
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