Bobby2c Posts: 2, Reputation: 1 New Member   #1 Aug 14, 2011, 04:13 PM

Need to know if I am coming up with the correct information Week 3 - Pro Forma Statements Chapter 4 The Lanford Corporation had 2008 sales of $110 million. The other pertinent financial data for 2008 is as follows: 2008 Sales $110,000,000 Dividend Payout Rate 55% Balance in Retained Earnings $41,150,000 Common Stock $11,000,000 Long-Term Bonds $3,550,000 Notes Payable $13,600,000 Profit Margin after Taxes 8.0% The BALANCE SHEET items that vary directly with sales are as follows: Cash 7% Accounts Receivable 15% Inventory 28% Net Fixed Assets 36% Accounts Payable 14% Accruals 9% The Comon Stock and the company's Long-Term Bonds will remain constant from 2008 through 2009 at $11 million and $3.55 million, respectiviely. a. How much additional external capital will be required for next year if sales increase 15%? (Assume that the company is already running at full capacity). Sales Increased by 15% $110,000,000 x 0.15 = $16,500,000 Cash 0.07% Accounts Receiveable 0.15% Inventory 0.28% Total Current Assets 0.50% Plant and Equipment 0.36% Total 0.86% Increased sales $16,500,000 x 0.86 = $14,190,000 Accounts Payable 0.14% Accruals 0.09% Total 0.23% Minus .23% x $165,000,000 = $3,795,000 To get the total new sales we want to add the 2008 sales with the increased sales which equals the $126,500,000 Profit Margin 0.08% Minus 0.08% x $126,500,000 x 1-0.55 = $10,120,000.55 x 0.45= $4,554,000.25 Subtract all of the totals together which is 14,190,000-3,795,000-4,554,000.25= $5,840,999.75 Additional external capital needed if there is an increase of 15 % would be around 5,840,999.75 Or the company can round up to 5,841,000

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