Question

Problem 9-8
Financing Deficit

Stevens Textile's 2015 financial statements are shown below:

Balance Sheet as of December 31, 2015 (Thousands of Dollars)

Cash	$ 1,080		Accounts payable	$ 4,320
Receivables	6,480		Accruals	2,880
Inventories	9,000		Line of credit	0
Total current assets	$16,560		Notes payable	2,100
Net fixed assets	12,600		Total current liabilities	$ 9,300
			Mortgage bonds	3,500
			Common stock	3,500
			Retained earnings	12,860
Total assets	$29,160		Total liabilities and equity	$29,160

Income Statement for December 31, 2015 (Thousands of Dollars)

Sales	$36,000
Operating costs	32,440
Earnings before interest and taxes	$ 3,560
Interest	460
Pre-tax earnings	$ 3,100
Taxes (40%)	1,240
Net income	$ 1,860
Dividends (45%)	$  837
Addition to retained earnings	$ 1,023

a.Suppose 2016 sales are projected to increase by 10% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 12%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.

FIxed Assets = ?

AFN =?

b.What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.

Notes Payable ( including line of credit)= ?

Answer 1