Forecast Jones' 2007 financial statements and External Funds Needed (EFN) with the following assumptions: It is December
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Question:
- Forecast Jones' 2007 financial statements and "External Funds Needed (EFN)" with the following assumptions:
- It is December 31, 2006 (so ignore 2007 first quarter case data)
- Sales will increase 20% (1.20) to $2.7 million
- The following items will also increase 20%:
- cost of goods sold and operating expense (no purchase discounts)
- current assets
- accounts payable and accrued expenses
- Interest expense and net fixed assets (property & equipment) will not change
- The tax rate is 35%
- The $249,000 bank loan at the end of 2006 will be paid off from the new credit line
- Long-term debt will be paid down another $24,000
- All earnings will be retained in the business
- Forecasted "External Funds Needed (EFN)" With Purchase Discounts: Change the forecast to assume 2% purchase discounts are taken (carefully consider the effect of this assumption on cost of sales, inventory and accounts payable).
- Should the bank grant Jones the $350,000 line of credit? Why or why not?
- Identify the pros and cons of three (3) reasonable alternatives Jones should consider. Recommend and explain your choices.
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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