5) The Pepper Mill is operating at full capacity. Assets, costs, and current liabilities vary directly...

5) The Pepper Mill is operating at full capacity. Assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The firm has sales of $42,700, net income of $5,500, total assets of $48,900, current liabilities of $3,650, long-term debt of $18,100, owners' equity of $27,150, and dividends of $1,925.

Prepare the Current Income Statement and Balance Sheet:

Prepare the Pro-Forma Income Statement and Balance Sheet:

What is the external financing need if sales increase by 14 percent?

Expert Solution

Income Statement
Particulars	Amount (USD)
Sales	42,700
Less: Cost of Sales	37,200
Net Income	5,500
Less: Dividends	1,925
Retained earnings	3,575

Balance Sheet
Particulars	Amount (USD)
Assets:
Total Assets	48,900

Liabilities and Equity:
Current liabilities	3,650
Long-term debt	18,100
Owners Equity	27,150
Total Equity & Liability	48,900

Proforma Income Statement and Balance Sheet.

Income Statement
Particulars	Amount (USD)
Sales	48,678
Less: Cost of Sales	42,408
Net Income	6,270
Less: Dividends	2,195
Retained earnings	4,076

Balance Sheet
Particulars	Amount (USD)
Assets:
Total Assets	48,900

Liabilities and Equity:
Current liabilities	3,650
Long-term debt	17,600
Owners Equity	27,651
Total Equity & Liability	48,900

Funding required is USD 770. as can be seen as difference of figures in Proforma and Current. This is actual Working capital increase due to increased sales.

jeff jeffy answered 2 years ago

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