The Harverly Company expects to finish the current year with the following financial results, and is developing its annual plan for next year.

Financial Plan Chapter 4 Haverly Company Income Statement This Year (5000) 1000 43.0 Revenue 573,020 COGS 31,743 Gross margin $ 42,073 520 Expenses Marketing $17.422 23.6 Engineering 7,087 9.6 Finance & administrative 7,603 10.3 Total expenses $32.112 45.5 EDIT $ 9,965 15.5 Interest 2.805 3.B EBT $ 7,160 9.7 Income tax 3,007 4.1 Net income 5 4,153 5.6 Haverly Company Balance Sheet This Year (5000) ASSETS LIABILITIES & EQUITY Cash $ 8,940 Accounts payable $ 1,984 Accounts receivable 12,303 Accruals 860 Inventory 7,054 Current liabilities $ 2.844 Current assets $28,297 Long-term debt $22,630 Fixed assets Equity Gross $65,223 Stock accounts $ 18,500 Accumulated depreciation (23,987) Retained earnings 25,559 Net $ 41,236 Total equity $44,059 Total assets $69,533 Total L&E $69,533 The following facts are available. FACTS Payables are almost entirely due to inventory purchases and can be estimated through COGS, which is approximately 45% purchased material . Currently owned assets will depreciate an additional $1,840,000 next year. There are two balance sheet accruals. The first is for unpaid wages. The current payroll of $32 million is expected to grow by 12% next year. The -losing date of the year will be six working days after a payday. The second accrual is an est. mate of the cost of purchased items that have arrived in inventory, but for which vendor invices have not yet been received. This materials accrual is generally about 10% of the payables balance at year end. The combined state and federal income tax rate is 42%. Interest on current and future borrowing will be at a rate of 12%, The plan will be based on the following assumptions. PLANNING ASSUMPTIONS Income Statement /tems (1) Revenue will grow by 13% with no change in product mix. Competitive pressure, however, is expected to force some reductions in pricing. (2) The pressure on prices will result in a 1.5% deterioration (increase) in the next year's cost ratio. (3) Spending in the marketing department is considered excessive and will be held to 21% of revenue next year. Introduction to Financial Management (4) Because of a major development project, expenses in the engineering department (7) The ACP will be reduced by 15 days. (Calculate the current value to arrive at the target) (9) Capital spending is expected to be 57 million. The average depreciation life of the awesto quired is five years. The firm uses straight-line depreciation, and takes a half year in the Develop next year's financial plan for Haverly on the basis of these assumptions and last years cial statements. Include a projected income statement, balance sheet, and statement of cash flow Part 1 (10) Bills are currently paid in 50 days. Plans are to shorten that to 40 days. (11) A dividend totaling 51.5 million will be paid next year. No new stock will be sold. by 20% (5) Finance and administration expenses will increase by 6%. Assets and Liabilities (6) An enhanced cash management system will reduce cash balances by 10% The GO (8) The inventory turnover ratio (COGS/inventory) will decrease by.5%. Financial Plan Chapter 4 Haverly Company Income Statement This Year (5000) 1000 43.0 Revenue 573,020 COGS 31,743 Gross margin $ 42,073 520 Expenses Marketing $17.422 23.6 Engineering 7,087 9.6 Finance & administrative 7,603 10.3 Total expenses $32.112 45.5 EDIT $ 9,965 15.5 Interest 2.805 3.B EBT $ 7,160 9.7 Income tax 3,007 4.1 Net income 5 4,153 5.6 Haverly Company Balance Sheet This Year (5000) ASSETS LIABILITIES & EQUITY Cash $ 8,940 Accounts payable $ 1,984 Accounts receivable 12,303 Accruals 860 Inventory 7,054 Current liabilities $ 2.844 Current assets $28,297 Long-term debt $22,630 Fixed assets Equity Gross $65,223 Stock accounts $ 18,500 Accumulated depreciation (23,987) Retained earnings 25,559 Net $ 41,236 Total equity $44,059 Total assets $69,533 Total L&E $69,533 The following facts are available. FACTS Payables are almost entirely due to inventory purchases and can be estimated through COGS, which is approximately 45% purchased material . Currently owned assets will depreciate an additional $1,840,000 next year. There are two balance sheet accruals. The first is for unpaid wages. The current payroll of $32 million is expected to grow by 12% next year. The -losing date of the year will be six working days after a payday. The second accrual is an est. mate of the cost of purchased items that have arrived in inventory, but for which vendor invices have not yet been received. This materials accrual is generally about 10% of the payables balance at year end. The combined state and federal income tax rate is 42%. Interest on current and future borrowing will be at a rate of 12%, The plan will be based on the following assumptions. PLANNING ASSUMPTIONS Income Statement /tems (1) Revenue will grow by 13% with no change in product mix. Competitive pressure, however, is expected to force some reductions in pricing. (2) The pressure on prices will result in a 1.5% deterioration (increase) in the next year's cost ratio. (3) Spending in the marketing department is considered excessive and will be held to 21% of revenue next year. Introduction to Financial Management (4) Because of a major development project, expenses in the engineering department (7) The ACP will be reduced by 15 days. (Calculate the current value to arrive at the target) (9) Capital spending is expected to be 57 million. The average depreciation life of the awesto quired is five years. The firm uses straight-line depreciation, and takes a half year in the Develop next year's financial plan for Haverly on the basis of these assumptions and last years cial statements. Include a projected income statement, balance sheet, and statement of cash flow Part 1 (10) Bills are currently paid in 50 days. Plans are to shorten that to 40 days. (11) A dividend totaling 51.5 million will be paid next year. No new stock will be sold. by 20% (5) Finance and administration expenses will increase by 6%. Assets and Liabilities (6) An enhanced cash management system will reduce cash balances by 10% The GO (8) The inventory turnover ratio (COGS/inventory) will decrease by.5%