07 Jul DISCUSS THE FINANCING CHANGES SUGGESTED BY THE STATEMENT PREPARED
wishes to analyze expect Show more Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017 which is 2 years ahead. Given the following information respond to parts a and b. (1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable 12% Inventory 18% Accounts payable 14% Net profit margin 3% (2) Marketable securities and other current liabilities are expected to remain unchanged. (3) A minimum cash balance of $480000 is desired. (4) A new machine costing $650000 will be acquired in 2016 and equipment costing $850000 will be purchased in 2017. Total depreciation in 2016 is forecast as $290000 and in 2017 $390000 of depreciation will be taken. (5) Accruals are expected to rise to $500000 by the end of 2017. (6) No sale or retirement of long-term debt is expected. (7) No sale or repurchase of common stock is expected. (8) The dividend payout of 50% of net profits is expected to continue. (9) Sales are expected to be $11 million in 2016 and $12 million in 2017. (10) The December 31 2015 balance sheet follows. Peabody & Peabody Balance Sheet December 31 2015 ($000) Assets: Cash $400 Market securities 200 Accounts recievable 1200 inventories 1800 Total Current assets 3600 Net fixed assets 4000 Total Assets $7600 Liabilities and stockholders equity: Accounts payable $ 1400 Accruals 400 Other current liabilities 80 Total current liabilities $1880 Long term debt 2000 total liabilities 3880 common equity 3720 Total liabilities and stockholders equity: $7600 a. Prepare a pro forma balance sheet dated December 31 2017. b. Discuss the financing changes suggested by the statement prepared in part a. Show less
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