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EXECUTIVE FRUIT’S FINANCIAL MANAGER BELIEVES THAT SALES IN 2015

EXECUTIVE FRUIT’S FINANCIAL MANAGER BELIEVES THAT SALES IN 2015

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Author: simmons96 96
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http://theperfecthomework.com/executive-fruits-financial-manager-believes-that-sales-in-2015-could-rise-by-as-much-as-20-or-by-as-little-as-5-assets-and-costs-change-in-proportion-to-sales/

Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.

 
a.
Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.)

 
 
Base Case
     20% Growth
 
     5% Growth
INCOME STATEMENT
 
 
 
 
 
 
  Revenue
$
8,000
 
$   
 
$   
  Cost of goods sold
 
7,200
 
  
 
  
 
 
 
  EBIT
$
800
 
$   
 
$   
  Interest
 
160
 
  
 
  
 
 
 
  Earnings before taxes
$
640
 
$   
 
$   
  State and federal tax
 
256
 
  
 
  
 
 
 
  Net income
$
384
 
$   
 
$   
  Dividends
 
256
 
  
 
  
 
 
 
  Retained earnings
$
128
 
$   
 
$   
 
 
 
 
 
 
 
 
 
 
BALANCE SHEET
 
 
 
 
 
 
  Assets
 
 
 
 
 
 
     Net working capital
$
800
 
$   
 
$   
     Fixed assets
 
3,200
 
  
 
  
 
 
 
     Total assets
$
4,000
 
$   
 
$   
 
 
 
  Liabilities and shareholders' equity
 
 
 
 
 
 
     Long-term debt
$
1,600
 
$   
 
$   
     Shareholders' equity
 
2,400
 
  
 
  
 
 
 
     Total liabilities and shareholders' equity
$
4,000
 
$   
 
$   
 
 
 
  Required external financing
 
 
 
$   
 
$   
 
b.
Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.)

 
BALANCE SHEET
 
Base Case
20% Growth    
 
5% Growth    
  Assets
 
 
 
 
 
 
     Net working capital
$
800
 
$   
 
$   
     Fixed assets
 
3,200
 
  
 
  
 
 
 
     Total assets
$
4,000
 
$   
 
$   
 
 
 
  Liabilities and shareholders' equity
 
 
 
 
 
 
     Long-term debt
$
1,600
 
$   
 
$   
     Shareholders' equity
 
2,400
 
  
 
  
 
 
 
     Total liabilities and shareholders' equity
$
4,000
 
$   
 
$   
 
 
 


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