Problem 9-8 Financing Deficit
Stevens Textile's 2015 financial statements are shown below:
Balance Sheet as of December 31, 2015 (Thousands of Dollars)
| Cash | $ 1,080 | | Accounts payable | $ 4,320 |
| Receivables | 6,480 | | Accruals | 2,880 |
| Inventories | 9,000 | | Line of credit | 0 |
| Total current assets | $16,560 | | Notes payable | 2,100 |
| Net fixed assets | 12,600 | | Total current liabilities | $ 9,300 |
| | | | Mortgage bonds | 3,500 |
| | | | Common stock | 3,500 |
| | | | Retained earnings | 12,860 |
| Total assets | $29,160 | | Total liabilities and equity | $29,160 |
Income Statement for December 31, 2015 (Thousands of Dollars)
| Sales | $36,000 |
| Operating costs | 32,440 |
| Earnings before interest and taxes | $ 3,560 |
| Interest | 460 |
| Pre-tax earnings | $ 3,100 |
| Taxes (40%) | 1,240 |
| Net income | $ 1,860 |
| Dividends (45%) | $ 837 |
| Addition to retained earnings | $ 1,023  |
Problem 9-8 Financing Deficit Stevens Textile's 2015 financial statements are shown below Balance Sheet as of December 31, 2015 (Thousands of Dollars) $ 4,320 Cash $1,080 Accounts payable Receivables Accruals 2,880 6,480 Line of credit Inventories 9,000 Total current assets $16,560 Notes payable 2,100 Net fixed assets Total current liabilities 9,300 12,600 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total liabilities and equity Total assets $29,160 $29,160 Income Statement for December 31, 2015 (Thousands of Dollars) $36,000 Sales Operating costs 32,440 Earnings before interest and taxes 3,560 Interest 460 Pre-tax earnings 3,100 Taxes (40%) 1,240 Net income $1,860 Dividends (45%) 837 Addition to retained earnings $1,023 a. Suppose 2016 sales are projected to increase by 20% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 8%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars $ Total assets 34992 $ AFN b. What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars. Notes payable (including line of credit) Problem 9-8 Financing Deficit Stevens Textile's 2015 financial statements are shown below Balance Sheet as of December 31, 2015 (Thousands of Dollars) $ 4,320 Cash $1,080 Accounts payable Receivables Accruals 2,880 6,480 Line of credit Inventories 9,000 Total current assets $16,560 Notes payable 2,100 Net fixed assets Total current liabilities 9,300 12,600 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total liabilities and equity Total assets $29,160 $29,160 Income Statement for December 31, 2015 (Thousands of Dollars) $36,000 Sales Operating costs 32,440 Earnings before interest and taxes 3,560 Interest 460 Pre-tax earnings 3,100 Taxes (40%) 1,240 Net income $1,860 Dividends (45%) 837 Addition to retained earnings $1,023 a. Suppose 2016 sales are projected to increase by 20% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 8%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars $ Total assets 34992 $ AFN b. What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars. Notes payable (including line of credit)
