Question

Pro forma for 2018:

2017: sales = 2.5 million

2018: sales = (expected) 3 mill

               Expected net profit margin: 4%

No dividends are paid.

Assets= 1.1 mil (50k cash, 250k AR, 550k inventory, 250k net fixed assets)

Liabilities/equity= 1.1 mil ( 300k AP, 75k NP, 150k debt, 575k equity)

NFA must increase 100k, NP to 25k, and 50k in debt. Addi. Financing to come from new debt (debt:asset ratio must stay at or below 1:2)

1. Make a balance sheet for 2018

2. How much addit. Financing do we need?

Answer 1

2018 (Expected Sales ) = 3,000,000

Expected profit = 0.04 * 3,000,000 = 120,000

Since no dividends are paid entire 120,000 will go towards retained earnings

Balance sheet is as shown below:

NFA (Non- Fixed Assets) will increases by 100 ,000 meaning current asset will Increase by 100,000 to 950,000 from the earlier 850,000 (50K + 250K + 550K)

The fixed assets will remain unchanged at 250,000

Current liabilties wil increase by 25,000 to 400,000 from the earlier 375,000 (300K + 75K).

Debt will increases from 150,000 to 200,000

Equity will have an addition of the 120,000 which is the reatined earnings that we calclated and hence equity will be 575000 +120000 = 695,000

Balance Sheet		Liabilties/Equity
Current Assets	950000	Current libaility	400000
Fixed Assets	250000	Debt	200000
		Equity	695000
Total Assets	1200000	Total	1295000
		AFN	-95000

Addit. finance required = -95,000 (Negative)