Chapter 4 Financial Planning 179 Haverly Company Income Statement This Year (5000) $ % Revenue COGS $73,820 100.0 31,743 Gross margin 43.0 $42,077 Expenses 57.0 Marketing $ 17,422 Engineering 23.6 Finance & administrative 7,087 9.6 7,603 10.3 Total expenses $ 32,112 43.5 EBIT $ 9,965 13.5 Interest 2,805 3.8 EBT $ 7,160 9.7 Income tax 3,007 4.1 EAT $ 4,153 5.6 Haverly Company Balance Sheet This Year (5000) ASSETS LIABILITIES & EQUITY Cash $ 8,940 Accounts payable Accounts receivable 12,303 Accruals Inventory 7,054 Current liabilities Current assets $28,297 Long-term debt Fixed assets Equity Gross $65,223 Stock accounts Accumulated depreciation (23,987) Retained earnings Net $41,236 Total equity Total assets $69,533 Total L&E $ 1,984 860 $ 2,844 $22,630 $18,500 25,559 $44,059 $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 closing date of the year will be six working days after a payday. The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices 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 Items (1) Revenue will grow by 13% with no change in product mix. Competitive pressure, however, is expected to force some reductions in pricing. Chapter 4 Financial Planning 179 Haverly Company Income Statement This Year (5000) $ % Revenue COGS $73,820 100.0 31,743 Gross margin 43.0 $42,077 Expenses 57.0 Marketing $ 17,422 Engineering 23.6 Finance & administrative 7,087 9.6 7,603 10.3 Total expenses $ 32,112 43.5 EBIT $ 9,965 13.5 Interest 2,805 3.8 EBT $ 7,160 9.7 Income tax 3,007 4.1 EAT $ 4,153 5.6 Haverly Company Balance Sheet This Year (5000) ASSETS LIABILITIES & EQUITY Cash $ 8,940 Accounts payable Accounts receivable 12,303 Accruals Inventory 7,054 Current liabilities Current assets $28,297 Long-term debt Fixed assets Equity Gross $65,223 Stock accounts Accumulated depreciation (23,987) Retained earnings Net $41,236 Total equity Total assets $69,533 Total L&E $ 1,984 860 $ 2,844 $22,630 $18,500 25,559 $44,059 $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 closing date of the year will be six working days after a payday. The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices 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 Items (1) Revenue will grow by 13% with no change in product mix. Competitive pressure, however, is expected to force some reductions in pricing