Balance Sheet and Net Sales

3 shows the declination 31, 2009 pro- forma balance saddlery and income statements for R& E Supplies, Inc. The pro- forma balance sheet shows that R& E Supplies will lend oneself up outdoor(a) funding from the bank of $ 1. 4 million. However, they show $ 1. 27 million in cash and short- bound securities. Why argon they going to the bank when they constitute most of the need amount in their specie account? 2. professional forma pecuniary statements, by definition, be predictions of a social clubs fiscal statements at a future point in time.So why is it important to analyze the historical performance of the conjunction onwards constructing pro forma pecuniary statements? 3. Suppose you constructed a pro forma balance sheet for a caller-up and the estimate for extraneous support necessary was negative. How would you watch this result? 4. Harlin shut in Companys gross revenue, half of which are for hard currency, over the past trine months were August Septemb er October $70,000 $120,000 $80,000 a. Estimate Harlins cash receipts in October if the smart sets accretion period is 30 days. b.Estimate Harlins cash receipts in October if the social clubs collection period is 45 days. c. What would be the October balance of Accounts Receivable for Harlin Fencing if the companys collection period is 30 days? 45 days? 5. Suppose you constructed a pro forma balance sheet and a cash budget for a company for the aforementioned(prenominal) time period and the external financing necessary from the pro forma bet exceeded the cash deficit estimated on the cash budget. How would you interpret this result? 6. Table 3. 5 presents a computer spreadsheet for estimating R& E Sup-plies external financing involve for 2009.The text mentions that with modifications to the equations for fair-mindedness and shed light on sales, the fore-cast poop easily be extended through 2010. Write the modified equations for equity and wampum sales. 7. Using a compute r spreadsheet, the information presented below, and the modified equations dogged in question 6 above, extend the fore-cast for R& E Supplies contained in Table 3. 5 through 2010. Is R& Es external financing required in 2009 higher or lower than in 2010? R& E Supplies Assumptions for 2009 ($ thousands) Growth rate in net sales 30. 0% tax rate 45. 0% salute of goods sold/ net sales 86. % Dividend/ earnings after tax 50. 0% Gen. , sell. & admin. incumbent assets/ net sales 29. 0% expenses/net sales 11. 0% pass doctor assets $270 Long- term debt $560 Current liabilities/ net sales 14. 4% Current pct long- term debt $100 Interest rate 10. 0% 8.This and the following deuce problems demonstrate that pro forma forecasts, cash budgets and cash flow forecasts all break the same estimated need for external financing provided you dont shew any mistakes. For problems 8, 9, and 10, you may ignore the effect of added borrowing on participation expense. The treasurer of Pepperton, Inc. a wholesale distributor of household appliances, wants to estimate his companys cash balances for the commencement exercise three months of 2009. Using the information below, construct a monthly cash budget for Pepperton for January through evidence 2009. Does it turn out from your results that the treasurer should be concerned most investing excess cash or looking for a bank loan? Pepperton Selected Information sales (20 percent for cash, the rest on 30- day credit terms) 2008 Actual October $360,000 November 420,000 celestial latitude 1,200,000 2009 communicate January $600,000 February 240,000 March 240,000Purchases (all on 60- day terms) 2008 Actual October $510,000 November 540,000 December 1,200,000 2009 Projected January $300,000 February 120,000 March 120,000 Wages account payable monthly $180,000 Principal payment on debt due in March 210,000 Interest due in March 90,000 Dividend payable in March 300,000 Taxes payable in February 180,000 Addition to compile depreciat ion in March 30,000 exchange balance on January 1, 2009 $300,000 token(prenominal) desired cash balance 150,000 9. Continuing problem 8, Peppertons yearbook income statement and balance sheet for December 31, 2008 await below.Additional in-formation about the companys accounting methods and the treasurers expectations for the first draw off of 2009 appear in the footnotes. Pepperton Annual Income Statement December 31, 2008 ($ thousands) Net sales $6,000 address of goods sold1 3,900 complete(a) profits 2,100 Selling and administrative expenses2 1,620 Interest expense 90 depreciation3 90 Net profit before tax 300 Tax (33%) 99 Net profit after tax $ 201Balance Sheet December 31, 2008 ($ thousands) Assets Cash $300 Accounts receivable 960 Inventory 1,800 match current assets $3,060 Gross fixed assets 900 Accumulated depreciation 150 Net fixed assets 750 full assets $3,810 Liabilities Bank loan $0 Accounts payable 1,740 Miscellaneous accruals4 60 Current portion long- term deb t5 210 Taxes payable 300 Total current liabilities $2,310 Long- term debt 990 Shareholders equity 510 Total liabilities and equity $3,810 1.Cost of goods sold consists entirely of items purchased in first nincompoop. 2 Selling and administrative expenses consist entirely of wages. 3 Depreciation is at the rate of $30,000 per quarter. 4 Miscellaneous accruals are not expect to change in the first quarter. 5 $210 due March 2009. No payments for remainder of year. a. Use this information and the information in problem 8 to construct a pro forma income statement for the first quarter of 2009 and a pro forma balance sheet for March 31, 2009. What is your estimated external financing need for March 31? b.Does the March 31, 2009, estimated external financing equal your cash surplus (deficit) for this date from your cash budget in problem 8? Should it? c. Do your pro forma forecasts tell you more than your cash budget does about Peppertons financial prospects? d. What do your pro forma inc ome statement and balance sheet tell you about Peppertons need for external financing on February 28, 2009? 10. Based on your answer to question 9, construct a first- quarter 2009 cash flow forecast for Pepperton. 11. Toys- 4- Kids manufactures p breakic toys. Sales and doing are highly seasonal.Below is a quarterly pro forma forecast indicating external financing ineluctably for 2009. Assumptions are in parentheses. Toys- 4- Kids 2009 Quarterly Pro Forma Forecast ($ thousands) Qtr 1 Qtr 2 Qtr 3 Qtr 4 Net sales $300 $375 $3,200 $5,000 Cost of sales (70% of sales) 210 263 2,240 3,500 Gross profit 90 113 960 1,500 Operating expenses 560 560560 560 Profit before tax (470) (448) cd 940Income taxes (188) (179) 160 376 Profit after tax ($282) ($269) $240 $564 Cash (minimum balance $200,000) $1,235 $927 $200 $200 Accounts receivable (75% of quarterly sales) 225 281 2,400 3,750 Inventory (12/ 31/ 08 balance $ 500,000) 500 500 500 500 Current assets 1,960 1,990 3,120 4,450 Net plant & equ ipment 1,000 1,000 1,000 1,000 Total assets $2,960 $2,708 $4,100$5,450 Accounts payable ( 10% of quarterly sales) 30 38 320 00 Accrued taxes ( payments quarterly in arrears) (188) (179) 160 376 Current liabilities ( 158) ( 142) 480 876 Long- term debt 400 400 400 400 Equity (12/ 31/ 08 balance $3,000,000) 2,718 2,450 2,690 3,254 Total liabilities and equity $2,960 $2,708 $3,570 $4,530 External financing required $ 0 $ 0 $ 530 $ 920 a. How do you interpret the negative numbers for income taxes in the first devil living quarters? b. Why are cash balances in the first two quarters greater than the minimum required $ 200,000?How were these numbers deter-mined? c. How was external financing required appearing at the bottom of the forecast determined? d. Do you consider Toys- 4- Kids will be able to borrow the external financing required as indicated by the forecast? 12. Continuing with Toys- 4- Kids introduced in the preceding problem, the companys output signal manager has argued f or years that it is inefficient to produce on a seasonal basis. She believes the company should switch to level production passim the year, building up finished goods inventory in the first two quarters to meet the peak selling needs in the last two.She believes the company can reduce its cost of goods sold from 70 to 65 percent with level production. a. Prepare a revised pro forma forecast assuming level production. In your forecast assume that quarterly accounts payable downstairs level production equal 10 percent of come quarterly sales for the year. To estimate quarterly inventory, use the following two formulas Inventoryeoq = Inventoryboq + Quarterly production Quarterly cost of sales Quarterly production Annual cost of sales/ 4 where eoq and boq refer to end of quarter and beginning of quarter, respectively.Please ignore the effect of increased external financing required on interest expense. b. What is the effect of the switch from seasonal to level production on annual p rofits? c. What effect does the switch have on the companys quarterly ending inventory? On the companys quarterly need for external financing? d. Do you call back the company will be able to borrow the amount of money required by level production? What obsolescence risks does the company incur by building up inventory in anticipation of future sales? Might this be a concern to lenders? 13. You will need to use the Standard & Poors Market Insight Web place ( www. hhe. com/ edumarketinsight) for this problem. Market Insight presents a spreadsheet entitled Forecasted Values. ( Excel Analytics, Valuation Data, Forecasted Values. )a. How are these forecasts generated? Are they more than simple extrapolation of past trends? b. How useful might these forecasts be for projecting a companys future financing needs? 14. This problem asks you to construct a simple simulation model. If you do not own simulation software, you can download to your computer a free, full- military unit version of Crystal Ball for a one- week trial. Point your web browser to www. crystalball. om and select download. a. Problem 7 above asked you to extend the forecast for R& E Sup-plies contained in Table 3. 5 through 2010. Using the same spread-sheet, simulate R& E Supplies external funding requirements in 2009 under the following assumptions. i. compensate the growth rate in net sales as a triangular distribution with a mean of 30 percent and a range 25 percent to 35 percent. ii. Represent the interest rate as a uniform distribution variable from 9 percent to 11 percent.iii. Represent the tax rate as a lognormal distribution with a mean of 45 percent and a standard deviation of 2 percent. . If the treasurer wants to be 95 percent certain of raising enough money in 2009, how much should he raise? ( Grab the triangle below the frequency chart on the right and move it to the left until 95. 00 appears in the Certainty window. ) 15. This problem asks you to desexualize one- and five- year financial fore-casts for Aquatic Supplies Company. An Excel spreadsheet containing the companys 2008 financial statements and counsels projections is available for download at www. mhhe. com/ higgins9e. (Select Student variance Choose> a Chapter >Excel Spreadsheets. Use this information to answer the questions represent in the spreadsheet. 16. The financial statements and additional information for Noble Equipment Corp. appear at www. mhhe. com/ higgins9e. (Select Student Edition Choose >a Chapter> Excel Spreadsheets. ) The companys fiscal year end is September 30. Nobles management wants to estimate the companys cash balances for the last three months of calendar year 2008, which are the first three months of fiscal year 2009. The questions incidental the spreadsheet ask you to prepare a monthly cash budget, pro forma financial statements, and a cash flow forecast for the period.