DANCEST 805 Lecture Notes - Lecture 2: Passive Management, Efficient-Market Hypothesis, Financial Intermediary
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Executive FruitĆ¢ĀĀs financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs. |
a. | Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.) |
Base Case | 20% Growth | 5% Growth | ||||
INCOME STATEMENT | ||||||
Revenue | $ | 7,000 | $ | $ | ||
Cost of goods sold | 6,300 | |||||
EBIT | $ | 700 | $ | $ | ||
Interest | 140 | |||||
Earnings before taxes | $ | 560 | $ | $ | ||
State and federal tax | 224 | |||||
Net income | $ | 336 | $ | $ | ||
Dividends | 224 | |||||
Retained earnings | $ | 112 | $ | $ | ||
BALANCE SHEET | ||||||
Assets | ||||||
Net working capital | $ | 700 | $ | $ | ||
Fixed assets | 2,800 | |||||
Total assets | $ | 3,500 | $ | $ | ||
Liabilities and shareholders' equity | ||||||
Long-term debt | $ | 1,400 | $ | $ | ||
Shareholders' equity | 2,100 | |||||
Total liabilities and shareholders' equity | $ | 3,500 | $ | $ | ||
Required external financing | $ | $ | ||||
b. | Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.) |
BALANCE SHEET | ||||||
Base Case | 20% Growth | 5% Growth | ||||
Assets | ||||||
Net working capital | $ | 700 | $ | $ | ||
Fixed assets | 2,800 | |||||
Total assets | $ | 3,500 | $ | $ | ||
Liabilities and shareholders' equity | ||||||
Long-term debt | $ | 1,400 | $ | $ | ||
Shareholders' equity | 2,100 | |||||
Total liabilities and shareholders' equity | $ | 3,500 | $ | $ | ||