Question

Assume that sales will grow at 5.00%. The following accounts (cash, accounts receivable, inventory, net fixed assets, accounts payable and accruals, as well as operating costs) are assumed to change with sales and will maintain their current percentage of sales rates into 2016. The dividend payout ratio will remain the same. Long-term debt and notes payable will remain constant into 2016 as will interest expense, as a result. The firm also does not plan to issue any additional common stock or conduct any share repurchases. The firm’s tax rate is 40%. Any additional funds needed will be sourced through a line-of-credit (LOC) and surpluses will be paid out through a special dividend.

	2015
Sales	$1,445.00
Operating Costs:	$1,245.00
EBIT	$200.00
Interest	$35.00
Earnings Before Taxes	$165.00
Taxes (40%)	$66.00
Net Income	$99.00
Dividends	$49.50
Addition to Retained Earnings	$49.50

BALANCE SHEET AS OF 12/31/2015:

ASSETS	2015
Cash	$72.25
Accounts Receivable	$144.50
Inventory	$289.00
Current Assets	$505.75
Net Fixed Assets (Net PPE)	$361.25
Total Assets (TA)	$867.00

LIABILITIES & SHAREHOLDER EQUITY	2015
Accounts Payable and Accruals	$36.13
Notes Payable	$40.00
Current Liabilities	$76.13
Long Term Debt	$310.00
Total Liabilities	$386.13
Common Stock	$300.00
Retained Earnings	$180.88
Owners' Equity	$480.88
Total Liabilities and Shareholder Equity	$867.00

Using the percent-of-sales forecast approach, forecast the 2016 income statement and balance sheet. Be sure the balance sheet balances.

What are the Projected Regular Dividends for 2016?

What is the Projected Special Dividend (if any)?

What is the Projected LOC (if any)?

Answer 1

2015	2015	2016
Sales	$1,445.00	$1,517.25
Operating Costs:	$1,245.00	$1,307.25
% of sales	86.2%
EBIT	$200.00	$210.00
% of sales	13.8%
Interest	$35.00	$35.00
Earnings Before Taxes	$165.00	$175.00
% of sales	11.4%
Taxes (40%)	$66.00	$70.00
Net Income	$99.00	$105.00
% of sales	6.9%
Dividends	$49.50	$52.50
Dividend payout %	50.0%
Addition to Retained Earnings	$49.50	$52.50
ALANCE SHEET AS OF 12/31/2015:
ASSETS	2015
Cash	$72.25	$75.86
% of sales	5.0%
Accounts Receivable	$144.50	$151.73
% of sales	10.0%
Inventory	$289.00	$303.45
% of sales	20.0%
Current Assets	$505.75	$531.04
Net Fixed Assets (Net PPE)	$361.25	$379.31
% of sales	25.0%
Total Assets (TA)	$867.00	$910.35
LIABILITIES & SHAREHOLDER EQUITY	2015
Accounts Payable and Accruals	$36.13	$37.94
% of sales	2.5%
Notes Payable	$40.00	$40.00
Current Liabilities	$76.13	$77.94
Long Term Debt	$310.00	$310.00
Total Liabilities	$386.13	$387.94
Common Stock	$300.00	$300.00
Retained Earnings	$180.88	$222.41
Owners' Equity	$480.88	$522.41
Total Liabilities and Shareholder Equity	$867.00	$910.35
Projected Regular dividend = 50% of net income = $52.5
What is the Projected Special Dividend (if any)? = $10.97, as total assets will be less than total liablites and equity by this amount so this will be assumed to be special dividend
Projectee LOC will be NIL