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