In: Accounting
Assume ABC Company has asked you to not only prepare their 2017 year-end Balance Sheet but to also provide pro-forma financial statements for 2018. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:
End of the year information:
Account |
12/31/17 Ending Balance |
Cash |
50,000 |
Accounts Receivable |
175,000 |
Inventory |
126,000 |
Equipment |
480,000 |
Accumulated Depreciation |
90,000 |
Accounts Payable |
156,000 |
Short-term Notes Payable |
12,000 |
Long-term Notes Payable |
200,000 |
Common Stock |
235,000 |
Retained Earnings |
solve |
Additional Information:
ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.
Project 1 |
Project 2 |
Project 3 |
|
Purchase Price |
$80,000 |
$175,000 |
$22,700 |
Required Rate of Return |
6% |
8% |
12% |
Time Period |
3 years |
5 years |
2 years |
Cash Flows – Year 1 |
$48,000 |
$85,000 |
$13,000 |
Cash Flows – Year 2 |
$36,000 |
$74,000 |
$13,000 |
Cash Flows – Year 3 |
$22,000 |
$38,000 |
N/A |
Cash Flows – Year 4 |
N/A |
$26,800 |
N/A |
Cash Flows – Year 5 |
N/A |
$19,000 |
N/A |
Part A: