Question

Larime Corp. is forecasting 20X2 near the end of 20X1. The estimated year-end financial statements and a worksheet for the forecast are given below. Management expects the following next year An 7% increase in revenue. Price cutting will cause the cost ratio (COGS/sales) to deteriorate (increase) by 1% (of sales) from its current level. Expenses will increase at a rate that is three quarters of that of sales. The current accounts will increase proportionately with sales. Net fixed assets will increase by $6 million. All interest will be paid at 12% Federal and state income taxes will be paid at a combined rate of 43%. Make a forecast of Larime's complete income statement and balance sheet. Enter your dollar answers in thousands. For example, an answer of $12 thousands should be entered as 12, not 12,000. Round percentage values to 1 decimal place. Enter all amounts as a positive numbers. Larime Corp. Projected Income Statement ($000) 20X1 20X2 $ $ Revenue $255,746 100.0 100.0 147,546 57.7 COGS Gross $108,200 42.3 Margin 45,784 17.9 Expenses ЕBIT $62,416 24.4 Interest 9,577 3.7 (12%) $ ЕВT $52,839 20.7 Inc Tax 22,721 8.9 (43%) Net Income$30,118 $ 11.8 Larime Corp. Projected Balance Sheet ($000) LIABILITIES & ASSETS EQUITY 20X1 20X2 20X1 20X2 C/A $178,940 $ C/L $83,487 $ 140,648 F/A Debt 79,450 Total $319,588 $ Equity 156,651 $319,588 $ Total

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Answer 1

Projected Income Statement

	20X1		20X2
	$	%	$	%
Revenue	255,746	100	273,648	100
COGS	147,546	57.7	160,631	58.7
Gross Margin	108,200	42.3	113,017	41.3
Expenses	45,784	17.9	48,188	17.6
EBIT	62,416	24.4	64,829	23.7
Interest (12%)	9,577	3.7	9,577	3.5
EBT	52,839	20.7	55,252	20.2
Inc Tax (43%)	22,721	8.9	23,758	8.7
Net Income	30,118	11.8	31,494	11.5

Projected Balance Sheet

ASSETS			LIABILITIES & EQUITY
	20X1	20X2		20X1	20X2
C/A	$178,940	191,466	C/L	$83,487	$89,331
F/A	140,648	146,648	Debt	79.450	79,450
			Equity	156,651	169,333
Total	$319.588	$338,114	Total	$319,588	$338,114

Working:

Revenues - increases by 7%

Thus revenues for 20X2 = 255,746 + 255,746 * 7% = 255746 + 17902 = 273,648

COGS - (COGS/Sales) ratio increase by 1%

Thus 20X2 ratio becomes 58.7% compared to 57.7% of that of 20X1

Thus, COGS = 58.7% * Sales = 58.7% * 273,648 = 160,631

Expenses - It increase at a rate that is 3/4 of that of sales

Sales increases by 7%, thus expenses increases by (3/4)*7% = 5.25%

Thus, expenses for 20X2 = 45,784 + 45,784 * 5.25% = 45,784 + 2,404 = 48,188

Interest - Same as the previous year as no additional debt details are given

Income tax is calculated @43% of the EBT i.e. 43%* 55,252 = 23,758

,Current Assets and Liabilities maintain the same ratio with Sales.

C/A/Sales for 20X1 = 178,940/255,746 = 70%

Thus C/A for 20X2 = Sales * 70% = 273,648 * 70% = 191,466

C/L Sales for 20X1 = 83,487/255,746 = 32.6%

Thus, C/L for 20X2 = Sales * 32.6% = 89,331

Fixed Assets increase by $6 million

Thus, Fixed Assets for 20X2 = 140,648 + 6,000 = 146,648

Equity will be the balancing figure in the balance sheet so that assets = liabilities for 20X2

So, Equity = Total liabilities & equity - C/L - Debt = 338,114 - 89,331 - 79,450 = 169,333