Question

18-3)
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% GrowthINCOME STATEMENT        Revenue$9,500 $    $     Cost of goods sold 8,550           EBIT$950 $    $     Interest 190           Earnings before taxes$760 $    $     State and federal tax 304           Net income$456 $    $     Dividends 304           Retained earnings$152 $    $             BALANCE SHEET        Assets           Net working capital$950 $    $        Fixed assets 3,800              Total assets$4,750 $    $        Liabilities and shareholders’ equity           Long-term debt$1,900 $    $        Shareholders’ equity 2,850              Total liabilities and shareholders’ equity$4,750 $    $        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.)

BALANCE SHEET Base Case20% Growth    10% Growth     Assets           Net working capital$950 $    $        Fixed assets 3,800              Total assets$4,750 $    $        Liabilities and shareholders’ equity           Long-term debt$1,900 $    $        Shareholders’ equity 2,850              Total liabilities and shareholders’ equity$4,750 $    $      

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