Question

Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as

10%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.

a.	Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.)

	Base Case	20% Growth	10% Growth
INCOME STATEMENT
Revenue	$	2,500	$	$
Cost of goods sold		2,250

EBIT	$	250	$	$
Interest		50

Earnings before taxes	$	200	$	$
State and federal tax		80

Net income	$	120	$	$
Dividends		80

Retained earnings	$	40	$	$


BALANCE SHEET
Assets
Net working capital	$	250	$	$
Fixed assets		1,000

Total assets	$	1,250	$	$

Liabilities and shareholders’ equity
Long-term debt	$	500	$	$
Shareholders’ equity		750

Total liabilities and shareholders’ equity	$	1,250	$	$

Required external financing			$	$

b.	Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.)

Executive Fruit’s financial manager