Assign 7 Chapter 9 Financial Forecasting For Strategic Growth Cabrera 2019-2020

CHAPTER 9: FINANCIA
Problem 1 (Pro Forma Statements)
Requirement/s:
Create a pro forma statements and reconcile them.
What is the additional financing needed here?
Solution:
Income Statement Pro Forma Income Statement
Sales 23,000 x 115% = Sales
Less: Costs 16,700 x 115% = Less: Costs
Net Income 6,300 x 115% = Net Income
Statement of Financial Position

Assets 15,800 x 115% Debt 5,200 x 115%
Equity 10,600 x 115%
Total 15,800 Total 15,800
Additional Funds Needed= Required Increase in Asset - Spontaneous Incease in Liabilities - Incr
Required Increase in Asset= Change in Sales x Current Asset (

Required Increase in Asset= ( 26,450-23,000) x 15,800 / 23,0
Required Increase in Asset= 2,370
Spontaneous Incease in Liabilities= Change in Sales x Current

Spontaneous Incease in Liabilities= ( 26,450-23,000) x 5,200 /
Spontaneous Incease in Liabilities=
Increase in Retained Earnings = Earnings after taxes - Dividen

Dividend Payment = Net income (projected) - Incre
Dividend Payment = 7,245 - ( 10,600 - 12,190)
Dividend Payment = 5,655
Increase in Retained Earnings = 7,245 - 5,655

Increase in Retained Earnings = 1,590
Additional Funds Needed= 2,370 - 780 - 1,590

Additional Funds Needed= 0
Problem 2 (Calculating EFN)
Requirement/s:
What is the external financing needed?
Solution:
Income Statement Pro Forma Income Statement
Sales 6,300 x 118%* = Sales
Less: Costs 3,890 x 118% = Less: Costs
Net Income 2,410 x 118% = Net Income
*Increase in Sales: (7,434 - 6,300) / 6,300 = 18%
Statement of Financial Position Pro Forma Stateme

Assets 18,300 x 118% = Assets
Total 18,300 Total
Debt 12,400 = Debt

Equity 5,900 + 2,844 (Net Income)* = Equity
Total 18,300 Total
*no dividends paid
External Financing Needed = Total assets - Total liabilities and equity

External Financing Needed = 21,594 - 21,144
External Financing Needed = 450
Problem 4: (Sales and Growth)
Requirement/s:
What is the maximum increase in sales that can be sustained assuming no new equity is assum
Solution:
Income Statement Statement of Financial Position

Sales 42,000 Current Assets 21,000
Less: Costs 28,500 Fixed Assets 86,000
Taxable income 13,500 Total 107,000
Less: Taxes (34%) 4,590
Net income 8,910
Return On Equity = Net Income / Total Equity Sustainable growth rate = (ROE × b) / [1 − (ROE × b
ROE = 8,910 / 56,000 Sustainable growth rate = [.1591(.7
ROE = .1591 or 15.91% Sustainable growth rate = .1253 or 1
Plowback ratio= b- payout ratio Maximum increase in sales= Sales x Sustainable gro
b = 1 − .30 Maximum increase in sales = 42,000
b = .70 Maximum increase in sales =
Problem 5 (Calculating Retained Earnings from Pro Forma Income)
Requirement/s:
What is the projected addition to retained earnings?
Solution:
Jordan Corporation Jordan Corporation
Income Statement Proforma Income Statement
Sales 38,000 x 120% = 45,600
Less: Costs 18,400 x 120% = 22,080
Taxable Income 19,600 x 120% = 23,520
Less: Taxes (34%) 6,664 x 120% = 7,997
Net Income 12,936 x 120% = 15,523
Dividends 5,200 5,200
Addition to Retained Earnings 7,736 7,736
Dividends = (Divends / Net Income (present)) (Net Income (projected))

Dividends= ( 5,200 / 12,936) ( 15,523)
Dividends= 6,240
Additional Retained Earnings= Net Income (projected) - DIvidends

Additional Retained Earnings= 15,523 - 6,240
Additional Retained Earnings= 9,283
CHAPTER 9: FINANCIAL FORECASTING FOR STRATEGIC GROWTH
orma Income Statement

26,450
19,205
7,245
Pro Forma Statement of Financial Position

= Assets 18,170 Debt 5,980
= Equity 12,190 (squeezed)
= Total 18,170 Total 18,170
ncease in Liabilities - Increase in Retained Earnings
n Sales x Current Asset (Present) / Sales (Present)

-23,000) x 15,800 / 23,000
hange in Sales x Current Liabilities (Present) / Sales (Present)

26,450-23,000) x 5,200 / 23,000
780
ngs after taxes - Dividend Payment

ncome (projected) - Increase in Equity
- ( 10,600 - 12,190)
orma Income Statement
7,434
4,590
2,844
Pro Forma Statement of Financial Position

21,594
21,594
12,400
8,744
21,144
g no new equity is assumed?
cial Position
Debt 51,000
Equity 56,000
Total 107,000
(ROE × b) / [1 − (ROE × b)]
growth rate = [.1591(.70)] / [1 − .1591(.70)]
growth rate = .1253 or 12.53%
s= Sales x Sustainable growth rate

ncrease in sales = 42,000(.1253)
ncrease in sales = 5,264
dan Corporation
ncome Statement

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CHAPTER 9: FINANCIA

Problem 1 (Pro Forma Statements)

Statement of Financial Position

Required Increase in Asset= Change in Sales x Current Asset (

Spontaneous Incease in Liabilities= Change in Sales x Current

Increase in Retained Earnings = Earnings after taxes - Dividen

Increase in Retained Earnings = 7,245 - 5,655

Additional Funds Needed= 2,370 - 780 - 1,590

*Increase in Sales: (7,434 - 6,300) / 6,300 = 18%

Statement of Financial Position Pro Forma Stateme

Total 18,300 Total

Debt 12,400 = Debt

External Financing Needed = Total assets - Total liabilities and equity

Problem 4: (Sales and Growth)

Income Statement Statement of Financial Position

Problem 5 (Calculating Retained Earnings from Pro Forma Income)

Dividends = (Divends / Net Income (present)) (Net Income (projected))

Additional Retained Earnings= Net Income (projected) - DIvidends

orma Income Statement

Pro Forma Statement of Financial Position

ncease in Liabilities - Increase in Retained Earnings

n Sales x Current Asset (Present) / Sales (Present)

hange in Sales x Current Liabilities (Present) / Sales (Present)

ngs after taxes - Dividend Payment

Pro Forma Statement of Financial Position

g no new equity is assumed?

s= Sales x Sustainable growth rate

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