Please use the percentage of sales method and the ratio method where appropriate to

forecast 2018E financial statements using the 2017 data. Use formulas to do all

calculations of the forecast estimates and use the iteration formula to determine the

interest expense and amount of debt at the same time.

All assumptions should be included.

At the beginning of 2017, Student Copy anticipated a substantial increase in sales.

Despite good sales the company experienced a shortage of cash and found it needed to

increase its short term borrowing to $500,000.

To do this it had to change banks as its current line of credit was $300,000. The new line

of credit required that it pay off all of its notes payables also and to maintain is

accounts payables at 10 days outstanding. This way it would be able to take all of its

purchase discounts which are 2/10 net 30.

There will be additions to property, plant and equipment as there is a need for

capacity to increase to support this increase in sales. In addition, the company is

trying to keep its days sales outstanding at 30 days and a minimum cash balance as

100,000.

Sales are predicted to increase from $4,519,000 to $5,000,000.

Using the percentage of sales method and ratio method to develop pro forma balance

sheet and income statements for 2018 to determine the amount of BANK DEBT required

to support this sales increase.

Income Statement Student Copy(in thousands)

2017 2018E Assumptions

Sales $4,519 $5,000

Cost of Goods Sold

Beg Inventory 432 ______

Purchases 3,579 ______

Ending Inventory 587 ______

Total COGS $3,424 ______

Gross Profit 1,095 ______

Operating Expenses 940 ______

EBIT $ 155 ______

Interest Expense 56 60

EBT $ 99 ______

Taxes 22 ______

NI $77 ______

*Use 35% as the tax rate, and 5% as the interest rate

Balance Sheet of Student Copy

2017 2018E

Cash $ 56 _______

A/R 606 _______

Inventory 587 _______

PPE 288 _______

Total Assets $1537 ________

Bank Debt $ 300 ________PLUG ***

Notes Payable trade 217 ________

A/P 376 ________

Accr Exp 75 75

LTD Current Portion 20 20

LTD 100 80

Equity 449 _______

TL & Equity $1537 _______