Executive Fruit’s financial manager believes that sales in 2015 could rise by as
ID: 2767004 • Letter: E
Question
Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 10%. 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 10%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.
Explanation / Answer
Base Case 20% Growth 10% Growth INCOME STATEMENT Revenue 4,500 5400 4,950 Cost of goods sold 4,050 4860 4,455 EBIT 450 540 495 Interest 90 108 99 Earnings before taxes 360 432 396 State and federal tax 144 172.8 158 Net income 216 259.2 238 Dividends 144 172.8 158 Retained earnings 72 86.4 79 BALANCE SHEET Assets Net working capital 450 540 495 Fixed assets 1,800 2160 1,980 Total assets 2,250 2700 2,475 Liabilities and shareholders' equity Long-term debt 900 900 900 Shareholders' equity 1,350 1,436 1,429 Total liabilities and shareholders' equity 2,250 2,336 2,329 Required external financing 364 146
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.