Q#2. You are preparing to discuss borrowing needs with your bank's loan officer who asks you...
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Q#2. You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 25% increase in sales. Days sales outstanding are expected to improve to 90. With respect to inventory and accounts payable, assume that purchases will be $8,500,000 and cash payments will be $8,800,000. Operations are running at 75% of capacity and have recently been streamlined. Accordingly, gross profit margins are expected to be 11% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 40%. For ease of calculation, assume interest expense remains the same. Prepare pro-forma financial statements and determine the amount of borrowing needs, which will be reflected in long-term debt. Cash 200,000 Sales 7,500,000 Accts receivable 2,500,000 Cost of sales 6,750,000 Inventory 1,800,000 Gross profit 750,000 Total current assets 4,500,000 Other expenses 250,000 Fixed assets 400,000 EBIT 500,000 Total assets 4.900.000 Interest 100,000 EBT 400,000 Accounts Payable 1,200,000 Taxes (40%) 160,000 Long-term debt 700,000 Net income 240.000 Total debt 1,900,000 Common stock 2,300,000 Retained Earnings 700,000 Total debt & equity 4.900.000 Q#2. You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 25% increase in sales. Days sales outstanding are expected to improve to 90. With respect to inventory and accounts payable, assume that purchases will be $8,500,000 and cash payments will be $8,800,000. Operations are running at 75% of capacity and have recently been streamlined. Accordingly, gross profit margins are expected to be 11% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 40%. For ease of calculation, assume interest expense remains the same. Prepare pro-forma financial statements and determine the amount of borrowing needs, which will be reflected in long-term debt. Cash 200,000 Sales 7,500,000 Accts receivable 2,500,000 Cost of sales 6,750,000 Inventory 1,800,000 Gross profit 750,000 Total current assets 4,500,000 Other expenses 250,000 Fixed assets 400,000 EBIT 500,000 Total assets 4.900.000 Interest 100,000 EBT 400,000 Accounts Payable 1,200,000 Taxes (40%) 160,000 Long-term debt 700,000 Net income 240.000 Total debt 1,900,000 Common stock 2,300,000 Retained Earnings 700,000 Total debt & equity 4.900.000
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