At the most recent strategic planning meeting, the board of directors of your co
ID: 2479799 • Letter: A
Question
At the most recent strategic planning meeting, the board of directors of your company has voted to issue additional stock to raise capital for major expansions for the company in the next five years. The board is considering $5 million. Take the most recent financial statements and prepare a set of projected financial statements based on the given assumptions:
Generate a projected income statement based on the given scenario.
Generate a projected statement of retained earning based on the given scenario.
Generate a projected balance sheet based on the given scenario.
Generate a projected cash flow statement based on the given scenario.
Explanation / Answer
1.
Projected Statement of Income for the next five years ($in millions)
Particularears Year-1 Year-2 Year-3 Year-4 Year-5
Sales 2.00 3.00 4.00 5.00 6.00
Cost of goods sold (1.20) (1.80) (2.40) (3.00) (3.60)
------------ ----------- ---------- ---------- -----------
Gross profit 0.80 1.20 1.60 2.00 2.40
Selling expenses (0.30) (0.30) (0.50) (0.60) (0.80)
Administrative exp. (0.30) (0.30) (0.40) (0.50) (0.60)
------------ ------------ ----------- ----------- ------------
Operating profit 0.20 0.60 0.70 0.90 1.00
Finance costs 0.00 0.30 0.30 0.30 0.30
----------- ------------ ------------ ------------ ------------
Proft before tax 0.20 0.30 0.40 0.60 0.70
Tax @30% 0.06 0.09 0.12 0.18 0.21
----------- ------------ ----------- ------------- ------------
Net profit 0.14 0.21 0.28 0.42 0.49
----------- ----------- ------------- ------------- ------------
2. Projected Statement of RetainedEarnings:
Particularears Year-1 Year-2 Year-3 Year-4 Year-5
Net income 0.14 0.21 0.28 0.42 0.49
Less dividends nil nil nil (0.12) (0.16)
Retained Earnings 0.14 0.35 0.63 0.90 1.23
Projected Balance Sheet:
Particularears Year-1 Year-2 Year-3 Year-4 Year-5
Common stock 2.00 2.00 2.00 2.00 2.00
Retained earings 0.14 0.35 0.63 0.90 1.23
Shareholders equity 2.14 2.35 2.63 2.90 3.23
Non-current liabil:
15% bonds nil 2.00 2.00 2.00 2.00
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