Question

Dahlia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 20 percent to $480 million. Current assets, fixed assets, and short-term debt are 20 percent, 70 percent, and 10 percent of sales, respectively. Charming Florist pays out 20 percent of its net income in dividends. The company currently has $125 million of long-term debt and $53 million in common stock par value. The profit margin is 15 percent.
a. Prepare the current balance sheet for the firm using the projected sales figure.

b. Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year?

c-1. Prepare the firm’s pro forma balance sheet for the next fiscal year.

c-2. Calculate the external funds needed.

Answer 1

Answer:

a.-

Current Balance Sheet

Current Assets:  80   Liabilities               40

Fixed                 280  Long Term Debt   125

                                  Common Stock      53

                                  RE:                         142  (A)

Total Assets      360 Total liab + Equity 360

c-1

Projected Balance sheet

Current Assets:  96     Liabilties                  48

Fixed assets:      336   Long term debt      174.6 (B)

                                     Common Stock        53

                                    RE                            156.4

Total Assets      432   Total Liab+ SE          432

b) external funds nedeed addiontal external fund 57.6 Millions

c-2 the total liab will be 222.6

Explanation:

sales increase 20% to 480 so previously it had: 480/(1+20%) = 400

profit margin 15%

net income: 480 x 15% = 72

Dividends: 72 x 20% = 14.4

RE Increase: 14.4

(A) RE is solve by diffrence using the accounting equation

assets = liab + equity

360 = 40 + 125 + 53 + RE

RE = 360 - 40 - 125 - 53 = 142

(B) Long term debt is solve by diffrence using the accounting equation

assets = liab + equity

360 = 40 + LT debt + 53 + 156.4

LT debt= 360 - 40 - 53 -156.4= 174.6

Current liabilities:

40 + 125 = 165

Proejcted liab:

48 + 174.6 = 222.6

found needed: 222.6 - 165 = 57.6