Your automatic, self-adjusting feedback widget assembly has shown a disappointing sales trend recently, and you are projecting a sales decrease from $7 million to $6 million for next year. This lower production will call for the shutdown of one of your older plants. You plan to sell this plant instead, and expect to realize $500,000 (its current book value) for it. You expect accounts receivable, inventory, cash, and accounts payable to remain the same percentage of sales. Your material costs 45 cents per dollar of sales, direct labor about 20 cents per dollar of sales, salaries and administrative costs will be $175,000, depreciation, excluding the plant that you plan to sell, will be $400,000. Your company pays 40% of its income to taxes, and pays dividends of 25% of earnings after tax. Interest expenses are 4% on the notes payable and 6% on the long term notes. Make a pro forma income statement and balance sheet for next year, and tell how much external financing will be needed. The balance sheet for the end of this year is shown below. |
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Balance Sheet for end of year |
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Assets |
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Liabilities & Net Worth |
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Cash |
$ 100,000 |
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A/P |
$ 450,000 |
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A/R |
250,000 |
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Notes Payable |
350,000 |
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Inventory |
450,000 |
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Long Term Notes |
2,450,000 |
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Fixed Assets |
3,250,000 |
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Mortgage |
0 |
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Total Assets |
$4,050,000 |
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Net Worth |
800,000 |
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Total Liabilities & |
$4,050,000 |
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