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  • Aug 14, 2011, 03:28 PM
    Bobby2c
    Just need to know If I am doing this Correctly
    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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