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Fin 200 Week 3 Assignmnet Pro Forma Statement

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Fin 200 Week 3 Assignmnet Pro Forma Statement

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Week 3 Assignment:
Pro Forma Statement

The Landis Corporation had 2008 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:

Percent

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 15 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 40 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 15 Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Profit margin after taxes . . . . . . . . . . . . . . . . . . 6%

ww.mhhe.com/bhd13

The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2008 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are currently $12 million.

a. How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.)

If sales increase by 15 %, the additional external capital that will be required would be $5,550,000. The formula to find this out is the (RNF) A L
(RNF) = S (∆S) – S (∆S) –PS2 (1 – D)
= 85% ($15 million) – 25% ($15 Million) – 6% (115 Million) (1-50%) = $12.75 million - $3.75 million - $6.9 millon (.50)
= $12.75 million - $3.75 million – $3.45 million
= $5.55 million

b. What will happen to external fund requirements if Landis Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin? Discuss each of...