Develop a pro forma income statement and balance sheet for the company given below. Use the following
Question:
Develop a pro forma income statement and balance sheet for the company given below. Use the following assumptions in making your pro forma:
Currently, fixed assets are at full capacity
Each asset grows proportionally with sales
Payables and accruals grow proportionally with sales
2017’s profit margin (2.52%) and dividend payout (30%) will be maintained in 2018
Sales are projected to increase by $500 million (25%)
Interest payments will not change (this is not realistic, but will save you some steps)
All additional funds needed will be raised through long term debt (again, this will save steps)
Income Statement (in millions)
December 31, 2017 Factor December 31, 2018 (expected)
Sales $ 2,000 x 1.25 $ 2,500
Less: Variable Costs (60%) 1,200
Fixed Costs 700
Earnings before int. & taxes $ 100
Interest 16 16
Earnings before taxes $ 84
Taxes (40%) 33.6
Net Income $ 50.4
Dividends (30%) 15.12
Addition to Retained Earnings $ 35.28
Balance Sheet (in millions)
2017 2018 (Expected)
Assets:
Cash and securities $ 20
Accounts Receivable 240
Inventory 240
Total Current Assets $ 500
Net Fixed Assets 500
Total Assets $1,000
Liabilities and Equity:
Accounts Payable and Accruals $ 100
Notes Payable 100
Total Current Liabilities $ 200
Long-term Debt $ 100
Common Stock 500
Retained Earnings 200
Total Claims $1,000
Additional Funds Needed:
Please show the steps on calucating long-term debt, common stock, retained earnings, total claims, and additonal funds needed.
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin