The Budda-Bing Manufacturing CompanyPreparing Pro Forma Financial Statements for 2013

Budda-BingManufacturing is planning to implement a major plant-modernization program to improve its competitive position. Included will be construction of a state-of-the-art manufacturing facility that will cost $400,000in 2013and is expected to lower the companys variable cost per tonne of steel. Tonyand Pauli, experienced budget analysts, have been charged with preparing a forecast of the firms 2013financial position assuming construction of the proposed new facility. They plan to use the 2012financial statements presented above along with the forecasts for other financial accounts provided in the following table.Key Projected Financial Data (2013)The Budda-BingManufacturing CompanyData ItemValueSalesIncrease to $6,500,000Cost of goods soldRemain the same %ageofsalesSelling ExpenseIncrease by 22%General and administrative expenseIncrease by 37.5%Accumulated Amortization Increase to $685,000Interest expenseIncrease to $97,000Tax rate40%Dividend payments$20,000 Average age of inventory56 daysAverage collection period52 daysAverage payment period26 daysAccrualsIncrease to $96,000Long-term debt, preferredshares, andcommon shares:Remain the same.

Required

a.Use the historic and projected financial data provided to prepare a pro forma income statement and balance sheet for the year ended December 31, 2013.

b.Will Budda-Bing Manufacturing Company need to obtain external financing to fund construction of theproposed facility? Explain. Prepare a Statement of EFR.

c.How would you recommend Budda-Bing raise the required Financing? What options might be available if the company wanted to explore all opportunities other than using their line of credit.

Income Statement The Budda-Bing Manufacturing Co. For the Year ended December 31, 2012 Sales revenue Less: Cost of Goods Sold Gross Margin Less: Operating Expenses S5,075,000 3,704,000 1,371,000 $650,000 416,000 152,000 Selling expense General and administrative expenses Amortization Expense Total Operating Expense Operating Earnings (EBIT) Less: Interest expense Earnings before taxes Less: Taxes (rate-40%) Net income after taxes 1,218,000 153,000 93,000 60,000 24,000 $36,000 Historical Ratios