Question

RAM, Inc. has the following balance sheet: RRM, Incorporated Balance Sheet as of 12/31/XO Assets Liabilities and Equity Cash $ 3,000 Accruals $ 3,500 Marketable securities 1,700 Accounts payable 16,400 Accounts receivable 17,340 Notes payable 5,000 Inventory 18,220 Long term debt 23,000 Common stock 22,000 Plant and equipment 38,000 Retained earnings 8,360 $78,260 $ 78,260 Sales are currently $100,000, but management expects sales to rise to $125,000. The net profit margin is expected to be 10 percent, and the firm distributes 50 percent of its camings as dividends. Management is concerned about the firm's need for external funding to cover the expansion in assets required by the expansion in sales. To achieve sales of $125,000, management will have to expand plant by $10,000 and expects to increase its holdings of cash by $1,000. However, the holding of marketable secunties may be reduced to zero. 2. According to the percent of sales and the additional information, will the firm need external financing, and, if so, how much? Round your answer to the nearest dollar. Enter the answer as a positive value. The firm select funds of $ b. Construct a pro forma balance sheet indicating the forecasted new entries for sales of $125,000. If the firm has excess funds, they should be invested in marketable secunties the firm needs funds, these should be covered by issuing new long-term debt. If your answer is zero, enter "O. Round your answers to the nearest dollar RRM, Incorporated Pro Forma Balance Sheet as of 12/31/X1 Assets Liabilities and Equity Cash Accruals Marketable secunties Accounts payable Accounts recevable Notes payable Inventory

Answer 1

Increase in sales = (125000-100000)/100000 = 25%

Increase in assets =Increase in plant+increase in cash -decrease in marketable securities+Increase in receivables+inventory

= 10000+1000-1700+25%*(17340+18220)

= 18190.00

Increase in spontaneous liabilities= (3500+16400)*25%=4975.00

Retained earnings = Profit after tax*(1-Payout)

= 125000*10%*(1-50%)

= 6250

EFN = Increase in assets-Increase in spontaneous liabilities -Retained earnings

= 18190-4975-6250

= 6965.00

Balance Sheet
Assets		Liabilities and equity
Cash	4000	Accruals	4375.00
Marketable securities	0	Accounts payable	20500.00
Accounts receivale	21675	Notes payable	5000.00
Inventory	22775
		Long term debt	29965.00
Plant and equipment	48000	Common stock	22000.00
		Retained earnings	14610.00
TOTAL	96450	TOTAL	96450

Workings

AutoSave © of HO- Book1 - Excel Sign in File Home Insert Draw Page Layout Formulas Data Review View Help O Tell me what you want to do Share Comme = = ab Calibri B I U - 11 - - A À - A - E = dan S General $ - % 9 Insert SX Delete, Format - A 47 T. ZU Sort & Filter Paste U Find & Select - Conditional Format as Formatting Table Cell Styles Clipboard Font Alignment Number Styles Cells Editing B31 B Ε =3000+1000 Assets Cash Marketable securities Accounts receivale Inventory Balance Sheet Liabilities and equity Accruals Accounts payable Notes payable =3500*125% =16400*125% 5000 =17340*125% =18220*125% Plant and equipment =38000+10000 Long term debt Common stock Retained earnings =23000+6965 22000 =8360+6250 TOTAL =SUM(C18:C24) TOTAL =SUM(E18:E24)