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PLEASE SHOW ALL WORK
Chapter 9 - Problem 8: Change the sales growth rate in cell C6 from 15% to 6%. Record the new calculated value of the first-pass AFN visible in cell E46 in the space provided below. [Format the value as a number with one decimal place. For example, 123.4] 9-8 Financing Deficit Stevens Textiles' 2015 financial statements are shown below: Balance Sheet as of December 31, 2015 (Thousands of Dollars) Cash $ 1,080 Receivables 6,480 Inventories 9,000 Total current assets $16,560 Net fixed assets 12,600 Accounts payable $ 4,320 Accruals 2,880 Line of credit 0 Notes payable 2,100 Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total liabilities and equity $29,160 Total assets $29,160 Income Statement for December 31, 2015 (Thousands of Dollars) Sales Operating costs Earnings before interest and taxes Interest Pre-tax earnings Taxes (40%) Net income Dividends (45%) Addition to retained earnings $36,000 32,440 $ 3,560 460 $ 3,100 1,240 $ 1,860 $ 837 $ 1,023 a. Suppose 2016 sales are projected to increase by 15% 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 10%, 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 ad- ditional funds needed. b. What is the resulting total forecasted amount of the line of credit? c. In your answers to Parts a and b, you should not have charged any inter- est on the additional debt added during 2016 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b? H ou WN A B D E F 1 Problem 9-8 2 3 INPUT 4 Tax rate Dividend payout ratio Sales growth rate 6.0% 7 Interest rate on debt 10.0% spontaneous 8 Accounts growing with all assets liabilities bperating costs 9 10 11 12 INCOME STATEMENT 13 (thousands of 5) 2015 % of sales 2016 1st pass 2016 2nd pass 14 Sales $ 36,000.0 15 Operating costs 32,440.0 16 EBIT 17 Int. expense 460.0 18 Pre-tax earnings 19 Taxes (40%) 20 Net income 21 Dividends Additon to retained 22 earnings Calculated based upon the total debt balance at the beginning (not end) of the year 23 2015 % of sales 2016 1st pass 2016 2nd pass 24 25 26 $ BALANCE SHEET ASSETS Cash Accounts receivable Inventories Total CA Net FA Total assets 1,080.0 6,480.0 9,000.0 27 28 29 30 31 12,600.0 Assume operating at full capacity $ 4,320.0 2,880.0 This is the plug variable in the second pass - the value you will change based upon the AFN from the first pass - the text mistakenly states notes payable 2,100.0 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 LIABILITIES AND EQUITY Accounts payable Accruals Line of credit Notes payable Total CL Mortgage bonds Total liabilities Common stock Retained earnings Total common equity Total L&E 3,500.0 3,500.0 12,860.0 AFN Chapter 9 - Problem 8: Change the sales growth rate in cell C6 from 15% to 6%. Record the new calculated value of the first-pass AFN visible in cell E46 in the space provided below. [Format the value as a number with one decimal place. For example, 123.4] 9-8 Financing Deficit Stevens Textiles' 2015 financial statements are shown below: Balance Sheet as of December 31, 2015 (Thousands of Dollars) Cash $ 1,080 Receivables 6,480 Inventories 9,000 Total current assets $16,560 Net fixed assets 12,600 Accounts payable $ 4,320 Accruals 2,880 Line of credit 0 Notes payable 2,100 Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total liabilities and equity $29,160 Total assets $29,160 Income Statement for December 31, 2015 (Thousands of Dollars) Sales Operating costs Earnings before interest and taxes Interest Pre-tax earnings Taxes (40%) Net income Dividends (45%) Addition to retained earnings $36,000 32,440 $ 3,560 460 $ 3,100 1,240 $ 1,860 $ 837 $ 1,023 a. Suppose 2016 sales are projected to increase by 15% 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 10%, 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 ad- ditional funds needed. b. What is the resulting total forecasted amount of the line of credit? c. In your answers to Parts a and b, you should not have charged any inter- est on the additional debt added during 2016 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b? H ou WN A B D E F 1 Problem 9-8 2 3 INPUT 4 Tax rate Dividend payout ratio Sales growth rate 6.0% 7 Interest rate on debt 10.0% spontaneous 8 Accounts growing with all assets liabilities bperating costs 9 10 11 12 INCOME STATEMENT 13 (thousands of 5) 2015 % of sales 2016 1st pass 2016 2nd pass 14 Sales $ 36,000.0 15 Operating costs 32,440.0 16 EBIT 17 Int. expense 460.0 18 Pre-tax earnings 19 Taxes (40%) 20 Net income 21 Dividends Additon to retained 22 earnings Calculated based upon the total debt balance at the beginning (not end) of the year 23 2015 % of sales 2016 1st pass 2016 2nd pass 24 25 26 $ BALANCE SHEET ASSETS Cash Accounts receivable Inventories Total CA Net FA Total assets 1,080.0 6,480.0 9,000.0 27 28 29 30 31 12,600.0 Assume operating at full capacity $ 4,320.0 2,880.0 This is the plug variable in the second pass - the value you will change based upon the AFN from the first pass - the text mistakenly states notes payable 2,100.0 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 LIABILITIES AND EQUITY Accounts payable Accruals Line of credit Notes payable Total CL Mortgage bonds Total liabilities Common stock Retained earnings Total common equity Total L&E 3,500.0 3,500.0 12,860.0 AFN
