FIN 300 Lecture : percentofsales.pdf
Get access
Related Documents
Related Questions
(If possible can you please complete in an excel document)
Excel Project Instructions
Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:
End of the year information:
Account | 12/31/15 Ending Balance |
Cash | 50,000 |
Accounts Receivable | 175,000 |
Inventory | 126,00 |
Equipment | 480,000 |
Accumulated Depreciation | 90,000 |
Accounts Payable | 156,000 |
Short-term Notes Payable | 12,000 |
Long-term Notes Payable | 200,000 |
Common Stock | 235,000 |
Retained Earnings | solve |
Additional Information:
Sales for December total 10,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product’s selling price is $25 per unit.
Company policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The December 31 2015 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
Sales representatives’ commissions are 12.5% of sales and are paid in the month of the sales. The sales manager’s monthly salary will be $3,500 in January and $4,000 per month thereafter.
Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).
All merchandise purchases are on credit, and no payables arise from any other transactions. One month’s purchases are fully paid in the next month.
The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
Dividends of $100,000 are to be declared and paid in February.
No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.
Equipment purchases of $55,000 are scheduled for March.
ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.
Project 1 | Project 2 | Project 3 | |
Purchase Price | $80,000 | $175,000 | $22,700 |
Required Rate of Return | 6% | 8% | 12% |
Time Period | 3 years | 5 years | 2 years |
Cash Flows – Year 1 | $48,000 | $85,000 | $15,000 |
Cash Flows – Year 2 | $36,000 | $74,000 | $12,000 |
Cash Flows – Year 3 | $22,000 | $38,000 | N/A |
Cash Flows – Year 4 | N/A | $26,800 | N/A |
Cash Flows – Year 5 | N/A | $19,000 | N/A |
Required Action:
Part A:
Prepare the year-end balance sheet for 2015. Be sure to use proper headings.
Prepare budgets such that the pro-forma financial statements for the first quarter of 2016 may be prepared.
Sales budget, including budgeted sales for April.
Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.
Selling expense budget.
General and administrative expense budget.
Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
Expected cash payments for purchases and the expected March 31 balance of accounts payable.
Cash budget.
Budgeted income statement.
Budgeted statement of retained earnings.
Budgeted balance sheet.
Part B:
Calculate using Excel formulas, the NPV of each of the 3 projects.
It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.
Problem 12-7
Forecasted Statements and Ratios
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2013, is shown here (millions of dollars):
Cash | $ 3.5 | Accounts payable | $ 9.0 | |
Receivables | 26.0 | Notes payable | 18.0 | |
Inventories | 58.0 | Line of credit | 0 | |
Total current assets | $ 87.5 | Accruals | 8.5 | |
Net fixed assets | 35.0 | Total current liabilities | $ 35.5 | |
Mortgage loan | 6.0 | |||
Common stock | 15.0 | |||
Retained earnings | 66.0 | |||
Total assets | $122.5 | Total liabilities and equity | $122.5 |
Sales for 2013 were $375 million and net income for the year was $11.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $4.5 million to common stockholders, so its payout ratio was 40%. Its tax rate is 40%, and it operated at full capacity. Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2014. Do not round intermediate calculations.
If sales are projected to increase by $70 million, or 18.67%, during 2014, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
$ million
Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
%
Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2014. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
Assume Upton's profit margin and dividend payout ratio will be the same in 2014 as they were in 2013. What is the amount of the line of credit reported on the 2014 forecasted balance sheets? (Hint: You don't need to forecast the income statements because you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2014 addition to retained earnings for the balance sheet.) Round your answers to the nearest cent.
Upton Computers Pro Forma Balance Sheet December 31, 2014 (Millions of Dollars) | ||
Cash | $ | |
Receivables | $ | |
Inventories | $ | |
Total current assets | $ | |
Net fixed assets | $ | |
Total assets | $ | |
Accounts payable | $ | |
Notes payable | $ | |
Accruals | $ | |
Total current liabilities | $ | |
Mortgage loan | $ | |
Common stock | $ | |
Retained earnings | $ | |
Total liabilities and equity | $ |