Suppose 2019 sales are projected to increase by 10% over 2018 sales. Use the forecasted financial statement method to forecast a
balance sheet and income statement for December 31, 2019. The interest rate on all debt is 9%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2018, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Do not round intermediate calculations. Round your answers to the nearest dollar.
1 answer:
Solution:
The question is incomplete. Please check the attached file for complete question.
Depreciation here is ignored for forecasting as no data is available.
All the assets including the Fixed assets is increased by 9 %, which is the rate of the increase in Sales.
(Assuming that all the additional debt in a form of the line of credit is being added at the end of a year
We consider that our company was fully operating at the full capacity in the year 2018, that it did not sell off any of the fixed assets of the company, and any required financing is borrowed as the notes payable.)
The two statements above may appear conflicting and also contradicting to each other. Let us assume that the second statement is correct.
<u>Forecasted Income Statement for the year 2019, 31 December</u>
(<em>thousands of dollars</em>)
Sales 41400
Operating Cost 37306
earning before interest 4094
Interest 448
Pre Tax Earning 3646
Taxes 40% 1458.4
Net Income 2187.6
Dividends 45% 984.42
Additional to retained 1203.18
earnings
<u>Balance sheet as on 2019, 31 December</u>
(<em>thousands of dollars</em>)
Cash 1242 Accounts payable 4968
Receivables 7452 Accruals 3312
Inventories 10350 Line of credit 0
Total current 19044 Notes payable 4190.82
assets Total current liabilities 12470.82
Net fixed assets 14490
Mortgage bonds 3500
Common stocks 3500
Retained earnings 14063.18
Total Assets 33534 Total liabilities and equity 33534
AFN is 2090.82 thousand
Line of credit is 0.
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