a. Merck INCOME STATEMENT Year 3 Estimate Year 2 Year 1 Net sales 47,716 40,343 Cost...

a.

Merck
INCOME STATEMENT	Year 3 Estimate	Year 2	Year 1
Net sales		47,716	40,343
Cost of goods		28,977	22,444
Gross profit		18,739	17,900
Selling general & administrative expense		6,531	6,469
Depreciation & amortization expense		1,464	1,277
Interest expense		342	329
Income before tax		10,403	9,824
Income tax expense		3,121	3,002
Net income		7,282	6,822
Outstanding shares	2,976	2,976	2,968

RATIOS
Sales growth	18.27%	18.27%
Gross Profit Margin	39.27%	39.27%
Selling General & Administrative Exp / Sales	13.69%	13.69%
DEPRECIATION (depn exp / pr yr PPE gross)	8.76%	8.76%
INT (int / pr yr LTD)	4.94%	4.94%
Tax (Inc Tax / Pre-tax inc)	30.00%	30.00%

BALANCE SHEET	Year 3 Estimate	Year 2	Year 1
Cash		3,287	4,255
Receivables		5,215	5,262
Inventories		3,579	3,022
Other		880	1,059
Total current assets		12,961	13,598

Property, plant & equipment		18,956	16,707
Accumulated depreciation		5,853	5,225
Net property & equipment		13,103	11,482
Other assets		17,942	15,075
Total assets		44,007	40,155

Accounts payable & accrued liabilities		5,904	5,391
Short-term debt & cmltd		4,067	3,319
Income taxes		1,573	1,244
Total current liab		11,544	9,954

Deferred income, taxes and other		11,614	11,768
Long term debt		4,799	3,601
Total liabilities		27,957	25,323

Common stock		30	30
Capital surplus		6,907	6,266
Retained earnings		31,500	27,395
OTHER EQUITIES		0	0
Treasury stock		22,387	18,858
Shareholder equity		16,050	14,832
Total liabilities & net worth		44,007	40,155

RATIOS
AR turn	9.15	9.15	7.67
INV turn	8.10	8.10	7.43
AP turn	4.91	4.91	4.16
Tax Pay (Tax pay / tax exp)	50.41%	50.41%	41.45%
FLEV (Assets/Equity)	2.35	2.74	2.71
Div/sh	$1.06	$1.06	$0.98
CAPEX	5,100	4312	3641
CAPEX/Sales	9.04%	9.04%	9.03%

Additional Balance Sheet Assumptions:

Other Current Assets- Unchanged

Other Assets- Unchanged

Deferred Income Taxes & Other- Unchanged

Short Term Debt & CMLTD- Unchanged

Long Term Debt- Unchanged

Required:

1)Prepare the estimated Year 3 projected income statement using the ratios provided.

2)Prepare the estimated Year 3 projected balance sheet using the ratios and assumptions provided. Remember that cash is your residual account to make the balance sheet, balance.

3)Assuming that Merck requires an ending 6.5% cash balance for sales projected in Year 3, does it have a ‘surplus’ or a ‘deficit’ of cash relative to the requirement. By how much? If a deficit, suggest how the deficit might be financed. If a surplus, suggest how it might be used.

Expert Solution

Income Statement
	$	% of Variable	Variable Cost
Sales	1,200,000
Cost of goods sold	800,000	75%	600,000
Gross profit	400,000
Operating expenses -Selling	280,000	42%	117,600
Administrative	150,000	40%	60,000
Net Profit(Loss)	(30,000)

Total Variable Expenses (600000+117600+60000)			$777600
Total Fixed Expenses (800000+280000+150000) - 777600			$452400

So Contribution
1200000-777600 = 422,400
% 0f Contribution = 422400/1200000 = 35.20%
Contribution per unit 422,400 / 240000 = 1.76

Break-even Point in units
Fixed Expenses / Contribution per unit
452400/1.76 = 257045 units

Break-even Point in Doller
452400 /35.20%
$1285227

ekkarill92 answered 2 years ago

Joyner Company’s income statement for Year 2 follows: Joyner Company’s Income Statement Sales $ 790,000 Cost...

Joyner Company’s income statement for Year 2 follows: Joyner Company’s Income Statement Sales $ 790,000 Cost of goods sold 406,000 Gross margin 384,000 Selling and administrative expenses 216,000 Net operating income 168,000 Nonoperating items: Gain on sale of equipment 6,000 Income before taxes 174,000 Income taxes 52,200 Net income $ 121,800 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Joyner Company's Balance Sheet Year 2 Year 1 Assets Cash $ 221,000 $ 207,500...

Joyner Company’s income statement for Year 2 follows: Joyner Company’s Income Statement Sales $ 797,000 Cost...

Joyner Company’s income statement for Year 2 follows: Joyner Company’s Income Statement Sales $ 797,000 Cost of goods sold 411,000 Gross margin 386,000 Selling and administrative expenses 217,000 Net operating income 169,000 Nonoperating items: Gain on sale of equipment 6,000 Income before taxes 175,000 Income taxes 70,000 Net income $ 105,000 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Joyner Company's Balance Sheet Year 2 Year 1 Assets Cash $ 195,300 $ 191,500...

Foxboro Company’s income statement for Year 2 follows: Foxboro Company Income Statement Sales $ 719,000 Cost...

Foxboro Company’s income statement for Year 2 follows: Foxboro Company Income Statement Sales $ 719,000 Cost of goods sold 142,000 Gross margin 577,000 Selling and administrative expenses 216,000 Net operating income 361,000 Gain on sale of equipment 6,000 Income before taxes 367,000 Income taxes 146,800 Net income $ 220,200 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Foxboro Company Balance Sheet Year 2 Year 1 Assets Cash $ 167,800 $ 54,300 Accounts receivable...

1. The four major elements of the income statement are: 2. The income statement reveals net...

1. The four major elements of the income statement are: 2. The income statement reveals net earnings (net income) of a firm for a period of time. Explain how “net earnings (net income) of a firm for a period of time” is different from each of the following descriptions: resources and equities of a firm at a point in time resources and equities of a firm for a period of time net earnings (net income) of a firm at a...

Joyner Company’s income statement for Year 2 follows: Sales $ 714,000 Cost of goods sold ...

Joyner Company’s income statement for Year 2 follows: Sales $ 714,000 Cost of goods sold 207,000 Gross margin 507,000 Selling and administrative expenses 217,000 Net operating income 290,000 Nonoperating items: Gain on sale of equipment 7,000 Income before taxes 297,000 Income taxes 89,100 Net income $ 207,900 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets ...

Income Statement Year Ended July 31, 2018 Net Sales Revenue $28,000 Cost of Goods Sold 10,800...

Income Statement Year Ended July 31, 2018 Net Sales Revenue $28,000 Cost of Goods Sold 10,800 Gross Profit 17,200 Operating Expenses: Selling Expenses $690 Administrative Expenses 1,550 Total Operating Expenses 2,240 Operating Income 14,960 Other Income and (Expenses): Interest Expense ? Total Other Income and (Expenses) ? Net Income before Income Tax Expense ? Income Tax Expense 2,810 Net Income $ ? The income statement for UtahUtah Communications follows. Assume UtahUtah Communications signed a 3-month, 9 %9%, $ 60 comma...

Freeport Company's income statement for last year is as follows: Income Statement Sales $300,000 Less: Cost...

Freeport Company's income statement for last year is as follows: Income Statement Sales $300,000 Less: Cost of goods sold 200,000 Gross margin 100,000 Less: Operating expenses 60,000 Income before taxes 40,000 Less: Income taxes 16,000 Net income $24,000 The beginning and ending balances for last year are available for the following accounts: Ending balance Beginning balance Accounts receivable $32,000 $40,000 Inventory 60,000 50,000 Prepaid expenses 12,000 8,000 Accumulated depreciation (40,000) (30,000) Accounts payable 30,000 45,000 Accrued liabilities 16,000 10,000 Income...

Joyner Company’s income statement for Year 2 follows: Sales $ 708,000 Cost of goods sold 387,000...

Joyner Company’s income statement for Year 2 follows: Sales $ 708,000 Cost of goods sold 387,000 Gross margin 321,000 Selling and administrative expenses 151,100 Net operating income 169,900 Nonoperating items: Gain on sale of equipment 8,000 Income before taxes 177,900 Income taxes 53,370 Net income $ 124,530 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash and cash equivalents $ 97,030 $ 80,700 Accounts receivable 228,000 132,000 Inventory...

Joyner Company’s income statement for Year 2 follows: Sales $ 719,000 Cost of goods sold 100,000...

Joyner Company’s income statement for Year 2 follows: Sales $ 719,000 Cost of goods sold 100,000 Gross margin 619,000 Selling and administrative expenses 150,600 Net operating income 468,400 Nonoperating items: Gain on sale of equipment 9,000 Income before taxes 477,400 Income taxes 143,220 Net income $ 334,180 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash and cash equivalents $ 303,780 $ 92,100 Accounts receivable 221,000 116,000 Inventory...

Joyner Company’s income statement for Year 2 follows: Sales $ 718,000 Cost of goods sold 327,000...

Joyner Company’s income statement for Year 2 follows: Sales $ 718,000 Cost of goods sold 327,000 Gross margin 391,000 Selling and administrative expenses 218,000 Net operating income 173,000 Nonoperating items: Gain on sale of equipment 9,000 Income before taxes 182,000 Income taxes 72,800 Net income $ 109,200 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash $ 53,400 $ 55,500 Accounts receivable 256,000 135,000 Inventory 319,000 284,000 Prepaid...

Question