A firm has the following income statement and balance sheet for the current year. Use the following
Question:
A firm has the following income statement and balance sheet for the current year. Use the following assumptions: Sales will increase by 12% in the projected year. Operating Costs, Cash, Other CA, NFA, and A/P & Accruals all change as a percentage of sales --the same ratio/percentage as the current year. The firm pays out 60% of their earnings as dividends. (a) (3 points) Use the AFN Equation to forecast the amount of additional funds needed. Assume that the dividend payout ratio and net profit margin remain constant. (b) (12 points) Use the percentage of sales approach to complete the pro forma statements for the projected year such that the balance sheet balances. In addition to the assumptions noted above, use the following assumptions to complete your forecast: LT Debt and C Stock will remain the same as the previous year. Retained earnings: RE last year + (NI for projected year – Dividends Paid for projected year). The firm pays interest on debt (notes payable and LT Debt) at 6%. The tax rate is 21%. Surplus funds will be paid out as a special dividend. AFN will be sourced from a line of credit (LOC). The balance sheet must balance when you are finished. You can list any adjustments to the balance sheet to the right, if you like. Be sure to update any accounts or totals impacted by adjustments made. There should be a value (even if it’s $0) in each grey box.
Understanding financial statements
ISBN: 978-0136086246
9th Edition
Authors: Lyn M. Fraser, Aileen Ormiston