Question
Problem Five (20 marks) Financial information on AAA Ltd. is shown below. AAA Ltd. Income Statement For the Year Ended December 31st, 2019 2018 Sales
Problem Five (20 marks)
Financial information on AAA Ltd. is shown below.
AAA Ltd. Income Statement | ||
For the Year Ended December 31st, | ||
2019 | 2018 | |
Sales | 4,215,750 | 3,850,000 |
Cost Of Goods Sold | 2,178,700 | 2,016,320 |
Other Expenses | 1,005,200 | 986,500 |
Depreciation | 9,800 | 8,550 |
Earnings Before Interest and Taxes | 1,022,050 | 838,630 |
Interest Expense | 56,735 | 46,870 |
Earnings Before Taxes | 965,315 | 791,760 |
Taxes (30%) | 289,595 | 237,528 |
Net Income | $ 675,721 | $ 554,232 |
AAA Ltd. Balance Sheet | ||
As at December 31st, | ||
ASSETS | 2019 | 2018 |
Cash & Equivalent | 50,750 | 23,180 |
Short-term investments | 202,834 | 186,014 |
Inventories | 1,458,841 | 1,355,047 |
Accounts Receivable | 218,500 | 131,221 |
Total Current Assets | 1,930,925 | 1,695,462 |
Prop, Plant & Equip - Net | 2,154,301 | 1,940,594 |
Total Assets | $ 4,085,226 | $ 3,636,056 |
LIABILITIES & EQUITY | ||
Accounts Payable | 267,566 | 258,151 |
Notes Payable | 82,823 | 62,310 |
Accruals | 58,559 | 31,210 |
Short-term Debt | 314,469 | 317,416 |
Total Current Liabilities | 723,417 | 669,087 |
Long-Term Debt | 833,547 | 844,139 |
Total Liabilities | 1,556,964 | 1,513,226 |
Common Share Capital | 650,000 | 650,000 |
Retained Earnings | 1,878,263 | 1,472,830 |
Total Equity | 2,528,263 | 2,122,830 |
Total Liabilities and Equity | $ 4,085,226 | $ 3,636,056 |
In addition to the AAA Ltd. financial statements, you are given more information as follows:
Sales are forecast to increase by 10% in 2020.
Notes Payable, short-term Debt, Long-term Debt, and Common Share Capital will not change. Net Plant and Equipment is forecasted to be $2,500,000 next year. Short-term investments are expected to be $250,000.
In 2020, the companys dividend payout ratio will be 40%.
In 2020, cost of goods sold is expected to be 50% of sales. Other expenses will be 25% of sales. Depreciation expense in 2020 is expected to be $11,000.
Cash is expected to be 1% of sales, and inventories will be 40% of sales. Accounts receivable will be 4% of sales. Accounts payable will be 4% of sales. Accruals will be 1% of sales.
The company is expected to pay 6% per year compounded annually on its short-term debt and 8% per year compounded annually on its long-term debt. The interest expense on the short-term debt in 2020 is calculated as interest rate on short-term debt * amount of short-term debt outstanding at the end of 2019. The interest expense on the long-term debt is calculated as interest rate on long-term debt * amount of long-term debt outstanding at the end of 2019.
The companys tax rate is 30%.
Based on the information provided you are to:
- Complete the pro-forma income statement and balance sheet for 2020.
- Calculate the amount of Additional Funds Needed in 2020.
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