Financial forecasting Managers at Western Electronics want to know how the eFindIt project will affect the companys financial statements for 2018. To review financial forecasting we will create pro forma financial statements for Western Electronics for 2018 with the eFindIt product by modifying the companys original forecasts for 2018.

The 2018 financials for Western Electronics without eFIndIt and some of the changes due to the eFindIt project are shown on the next page. The $4,200,000 working capital investment has been separated into three components - $1.2 million for Accounts Receivable, $3.8 million for Inventory and $800,000 for Accounts Payable, for an initial investment in net working capital of $4.2 million. Change in Cost of Goods Sold is given. We will assume that there arent changes in other expenses. Assume that the interest on the new debt is outstanding for the entire year, so it will be 8% of the face value. Dividends will not change. The tax rate will be 30%. The plug figure is Credit Line, if additional funds are needed, or Cash, if the Credit Line is negative.

Income Statement Change 2018 without eFindIt 98,850,000 3,800,000 33,000,000 18,000,000 13,000,000 28,000,000 11,000,000 0 0 0 2018 with eFindIt 126,850,000 14,800,000 33,000,000 18,000,000 13,000,000 ? Sales Cost of Sales R&D Marketing General, Administrative & Sales Earnings before Interest, Depreciation and Taxes Interest Expense Depreciation Expense Earnings before Taxes Tax (30%) Net Income Dividends to Retained Earnings 17,000,000 ? ? 31,050,000 1,700,000 1,800,000 27,550,000 8,265,000 19,285,000 12,600,000 6,685,000 No change Balance Sheet - Assets Change 2018 without eFindIt 32,000,000 22,200,000 2,200,000 56,400,000 32,100,000 No change 1,200,000 3,800,000 2018 with eFindIt 32,000,000 23,400,000 6,000,000 Cash Accounts Receivable Inventory TCA Plant, Property & Equipment Accumulated Depreciation Net PP&E Total Assets 84,100,000 52,000,000 ? 8,250,000 23,850,000 80,250,000 Change 800,000 2018 with eFindIt 1,620,000 Balance Sheet Liabilities Accounts Payable Credit Line (Plug figure) Total Current Liabilities Long-term Debt (Bonds) Common Stock Retained Earnings Total Liabilities & Equity 2018 without eFindIt 820,000 0 820,000 20,000,000 5,000,000 54,430,000 80,250,000 50,000,000 No change 70,000,000 5,000,000 Income Statement Change 2018 without eFindIt 98,850,000 3,800,000 33,000,000 18,000,000 13,000,000 28,000,000 11,000,000 0 0 0 2018 with eFindIt 126,850,000 14,800,000 33,000,000 18,000,000 13,000,000 ? Sales Cost of Sales R&D Marketing General, Administrative & Sales Earnings before Interest, Depreciation and Taxes Interest Expense Depreciation Expense Earnings before Taxes Tax (30%) Net Income Dividends to Retained Earnings 17,000,000 ? ? 31,050,000 1,700,000 1,800,000 27,550,000 8,265,000 19,285,000 12,600,000 6,685,000 No change Balance Sheet - Assets Change 2018 without eFindIt 32,000,000 22,200,000 2,200,000 56,400,000 32,100,000 No change 1,200,000 3,800,000 2018 with eFindIt 32,000,000 23,400,000 6,000,000 Cash Accounts Receivable Inventory TCA Plant, Property & Equipment Accumulated Depreciation Net PP&E Total Assets 84,100,000 52,000,000 ? 8,250,000 23,850,000 80,250,000 Change 800,000 2018 with eFindIt 1,620,000 Balance Sheet Liabilities Accounts Payable Credit Line (Plug figure) Total Current Liabilities Long-term Debt (Bonds) Common Stock Retained Earnings Total Liabilities & Equity 2018 without eFindIt 820,000 0 820,000 20,000,000 5,000,000 54,430,000 80,250,000 50,000,000 No change 70,000,000 5,000,000