Executive Fruit’s financial manager believes that sales in 2015 could rise by as

Question

Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.

Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.)

Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.)

Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.

Explanation / Answer

     20% Growth      5% Growth INCOME STATEMENT   Revenue 9,000 10800 9450   Cost of goods sold 8,100 9720 8505   EBIT 900 1080 945   Interest 180 180 180   Earnings before taxes 720 900 765   State and federal tax 288 345.6 302.4   Net income 432 554.4 462.6   Dividends 288 345.6 302.4   Retained earnings 144 208.8 160.2 BALANCE SHEET   Assets      Net working capital 900 1080 945      Fixed assets 3,600 4320 3780      Total assets 4,500 5400 4725   Liabilities and shareholders' equity      Long-term debt 1,800 1800 1800      Shareholders' equity 2,700 2700 2700      Total liabilities and shareholders' equity 4,500 4500 4500   Required external financing 900 225 BALANCE SHEET 20% Growth     5% Growth       Assets      Net working capital 900 1080 945      Fixed assets 3,600 4320 3780      Total assets 4,500 5400 4725   Liabilities and shareholders' equity      Long-term debt 1,800 2700 2,025      Shareholders' equity 2,700 2700 2700      Total liabilities and shareholders' equity 4,500 5400 4,725

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