Problem 12-07 Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Cash	$ 3.5		Accounts payable	$ 9.0
Receivables	26.0		Notes payable	18.0
Inventories	58.0		Line of credit	0
Total current assets	$ 87.5		Accruals	8.5
Net fixed assets	35.0		Total current liabilities	$ 35.5
			Mortgage loan	6.0
			Common stock	15.0
			Retained earnings	66.0
Total assets	$122.5		Total liabilities and equity	$122.5

Sales for 2016 were $350 million and net income for the year was $10.5 million, so the firm's profit margin was 3.0%. Upton paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $50 million, or 14.29%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places. %
3. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

   Upton Computers Pro Forma Balance Sheet December 31, 2017 (Millions of Dollars)
   Cash	$
   Receivables	$
   Inventories	$
   Total current assets	$
   Net fixed assets	$
   Total assets	$
   Accounts payable	$
   Notes payable	$
   Line of credit	$
   Accruals	$
   Total current liabilities	$
   Mortgage loan	$
   Common stock	$
   Retained earnings	$
   Total liabilities and equity	$

Problem 12-07 Forecasted Statrments and Ratin Upton Computers makes bulk purchases of small computers, stocks them in convenlenty located warehouses, shigs them to its chain of retall stores, and has a staff to advise oustomers and help them set up their new computers, Upton's balance sheet as of December 31, 2016, is shown here (millians of dollars) Cash Receivables $ 3.5 Accounts payable 26.0 Notes payable 58.0 Line of credit $ 9.0 18.0 Total current assets $ 87.5 Accruals Net flked assets 35.0 Total current lla billties 35.5 Mortgage loan Common stack Retained earnings 15.0 G6.0 $122.5 Total assets $122.5 Total lbilities and equity Sales or 2016 were s3 illian and net incarne nr the year was $10.5 illion, sa the firm's prft ar in was 3.0% Upton paid dividends ot S4.2 million naa man str ckholders, sa its payout ratia was 4( th. Its tax rate was 404 , and it operated at full capacity. Assume that all assets/sales ratios, spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017 . Do not round intermediate calculations. a. If sales are projected to increase by $50 million, or 14.29% during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example an answer of S1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. mill ion b. Using the AFN equation, determine Upton's self-supporting growth rate. Thet is, what is the maximum growth rate the firm cen achieve without having to employ nonspontaneaus extemal funds? Round your answer to two decimal places c. Use the precasted finana statement method to recast Upton's balance sheet ar December 31 2017. Assum e that all additional exte al capital is raised as a line af credit at the en af the year and is ref ected because the debt is added at the end of thr t Assume uptan's Pm t ar in and dividend payout rtin will br:the samn in 2017 as thr: were in 2016. What is thr ar aunt of the line n credit reported Dn the 2017 Drncasted halanrn shems? Hint: You dDn't ner to arecast thn income statements brcause the line of credit is taken out on last day of the year and you are given the projrcted sales, proft margin, and dividend payout ratio; thrse figures allow yau to calaulate the 2017 addition to reta inad ramings for the balance sheet without actually constucting a full income statement.) Round your answers to the nearest cent yrar, threr will be no additional interest rxprnsc due to the new debt) Upton Computers Pro Forma Balance Sheet December 31, 2017 (Millions of Dollars) Cash Receivables Inventories Total current assets Net fixed assets Total assets Accounts payable Notes payable Line of credit Accruals Total current liabilities Mortgage loan Common stock Retained earnings Total liabilities and equity