Question 1

(Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,500,000. In addition, the firm pays taxes at 35 percent and will owe $285,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 60 percent of sales and operating expenses will total 32 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Complete the pro-forma income statement below: (Round to the nearest dollar.) Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income CA Interest expense Earnings before taxes $ Taxes Net income $(Related to Checkpoint 4.1) (Liquidity analysis) Airspot Motors, Inc. has $2,322,000 in current assets and $860,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other current assets and current liabilities remain constant)? Airspot Motors, Inc. could add up to $ in inventories. (Round to the nearest dollar.)(Liquidity Analysis) The King Carpet Company has $2,820,000 in cash and a total of $12,730,000 in current assets. The firm's current liabilities equal $5,070,000 such that the firm's current ratio equals 2.5. The company's managers want to reduce the firm's cash holdings down to $1,070,000 by paying $547,000 in cash to expand the firm's truck fleet and using $1,203,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is . (Round to one decimal place.)