Question

You are preparing to discuss borrowing needs with your​ bank's loan officer who asks you to prepare​ pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 21​% increase in sales. Days sales outstanding are expected to improve to 45 days. With respect to inventory and accounts​ payable, assume that purchases will be ​$9 comma 450 comma 100 and cash payments will be ​$8 comma 505 comma 090. The Company expects to invest ​$1 comma 542 comma 000 ​(net of​ depreciation) to expand its storage capacity and achieve scale savings. ​ Accordingly, gross profit margins are expected to be 29​% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 47​%. For ease of​ calculation, assume interest expense remains the same. Prepare​ pro-forma financial statements and determine the amount of borrowing​ needs, which will be reflected in​ long-term debt.​ (round your answers to the nearest​ integer, and fill in all amounts including​ totals; print out the problem to aid working​ it) Cash ​400,000 Sales ​10,000,000 Accounts Receivable ​1,400,000 Cost of Sales ​8,000,000 Inventory ​1,800,000   Gross Profit ​2,000,000   Total current Assets ​3,600,000 Operating Expense ​900,000 Fixed Assets ​1,400,000 EBIT ​1,100,000 Total Assets ​5,000,000 Interest Exp ​100,000 EBT ​1,000,000 Accounts Payable ​1,200,000 Tax​ (30%) ​300,000 ​Long-term Debt ​1,000,000 Net Income ​700,000   Total Debt ​2,200,000 Common Stock ​1,300,000 Retained earnings ​1,500,000   Total Debt and Equity ​5,000,000

Cash   

                                                                          

Sales   

Accounts Receivable   

Cost of Sales    

Inventory    

                                                               

Gross Profit    

  Total Current Assets    

                                             

Operating Expenses   

Fixed Assets   

EBIT  

Total Assets    

                                                             

Interest Exp   

Accounts Payable   

                                           

EBT  

​Long-term Debt    

Tax  

Common Stock    

Net Income   

Retained Earnings   

Total Debt and Equity

Answer 1

INCOME STATEMENT
	Last year	Basis for Projections	This year Projections
Sales	1,00,00,000	21%	1,21,00,000
Cost of Sales	80,00,000		85,91,000
Gross Profit	20,00,000	29% of sales	35,09,000
Operating Expense	9,00,000	9% of sales	10,89,000
EBIT	11,00,000		24,20,000
Interest Exp	1,00,000		1,00,000
EBT	10,00,000		23,20,000
Tax​ (30%)	3,00,000		6,96,000
Net Income	7,00,000		16,24,000
Retention (47%)			7,63,280

BALANCE SHEET
	Last year	Basis for Projections	This year Projections	After financing
Cash	4,00,000	4% of sales of 12100000	4,84,000	4,84,000
Accounts Receivable	14,00,000	= 12100000*45/365 =	14,91,781	14,91,781
Inventory	18,00,000	=1800000+9450100-8591000 =	26,59,100	26,59,100
Total current Assets	36,00,000		46,34,881	46,34,881
Fixed Assets	14,00,000	+1542000	29,42,000	29,42,000
Total Assets	50,00,000		75,76,881	75,76,881
Accounts Payable	12,00,000	1200000+9450100-8,505,090	2145010	21,45,010
​Long-term Debt	10,00,000		10,00,000	18,68,591
Total Debt	22,00,000		31,45,010	40,13,601
Common Stock	13,00,000		13,00,000	13,00,000
Retained earnings	15,00,000	763280	22,63,280	22,63,280
Total Debt and Equity	50,00,000		67,08,290	75,76,881
		Borrowing needs	8,68,591