Question

Executive Fruit’s 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		$		$