Question

1. CFO of LincolnHike Inc. has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 20% to 295.5 million. Current assets, fixed assets, and short-term debt are 20 percent, 90 percent, and 15 percent of sales respectively. The company pays out 40 percent of its net income in dividends. The company currently has 32 million of long-term debt, and 16 million in common stock par value. The profit margin is 12%. (20 points)

1. Construct the current balance sheet for the firm using the projected sales figure.

2. Based on the sales growth forecast, how much does the company need in external funds for the upcoming fiscal year.

3. Construct the firm’s pro forma balance sheet for the next fiscal year and confirm the external funds needed that you calculated in part (b).

Answer 1

1. Current Year Balance Sheet (Answer for question a)

Sales figure for the current financial year = (295.5)*(100/120) = 246.25 million

Net Income = (.2) * 246. 25 = 29.55

Asset (in million)	Liability (in million)
Current Asset = (.2)* 246.25 = 49.25	Short Term Debt = (.15) * 246.25 = 36.94
Fixed Asset = (.9)*246.25 = 221.625	Long Term Debt = 32
	Common Stock (par value) = 16
	Retained Earning = Profit - dividend = . 29.55 - (.4) * 29.55 = 17.73
	External Fund = Total Asset - (All liabilities + Equity) = 168.2
Total Asset = 270.87	Total Liability = 270.87

2. Considering the sales growth of 20%, the revised Balance Sheet would be as follows: (Answer for question c)

Profit = .12 * 295.5 = 35.46

Asset	Liability
Current Asset = 295.5 * .2 = 59.1	Short Term Debt = 295.5 * .15 = 44.32
Fixed Asset = 295.5 * .9 = 265.95	Long Term Debt = 32
	Common Stock = 16
	Retained Earning = profit - Dividend = 35.46 - .4 * 35.46 = 21.276
	External fund = 211.454 (Answer for Question b)
Total Asset = 325.05	Total Liability = 325.05