(Financial forecasting)

(Financial forecasting)
June 29, 2019
(Defining capital structure weights
June 29, 2019

​​(Financial forecasting)  The balance sheet of the Thompson Trucking Company​ (TTC) follows:  

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TTC had sales for the year ended​ 12/31/13 of $49.2449.24 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends. ​ Thus, TTC generates no funds from its earnings that can be used to expand its operations. ​ (Assume that depreciation expense is just equal to the cost of replacing​ worn-out assets.).​ Hint: Make sure to round all intermediate calculations to at least five decimal places.

a.  If TTC anticipates sales of $79.6779.67 million during the coming​ year, develop a pro forma balance sheet for the firm for​ 12/31/14. Assume that current assets vary as a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.

b.  How much​ “new” financing will TTC need next​ year?

c.  What limitation does the​ percent-of-sales forecast method suffer​ from? Discuss briefly.

a.  If TTC anticipates sales of $79.6779.67 million during the coming​ year, develop a pro forma balance sheet for the firm for​ 12/31/14. Assume that current assets vary as a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.  ​(Round to the nearest​ dollar.)

Thompson Trucking Company Balance​ Sheet, December​ 31, 2013​ ($ millions)

Current assets

​$9.939.93

Accounts payable

​$4.914.91

Net fixed assets

14.7114.71

Notes payable

0.000.00

Total

​$24.6424.64

Bonds payable

9.679.67

Common equity

10.0610.06

Total

​$24.6424.64

 
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