Question

CASE 1 (35 points)

The 2019 financial statements for Assol Corporation follow. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent. The firm is operating at full capacity and no new debt or equity is issued.

income statement Balance sheet

Sales $7,900	Current assets $3,900	current liabilities $2,100
Costs 5,500	Fixed assets 8,600	Long-term debt 3,700
Taxable income $2,400	______	Equity 6,700
Taxes (25%) 600	Total $12,500	Total $12,500
Net Income $1,800

0. Instructions:

   1. Prepare Proforma Income Statement for 2020. Calculate Dividends and Addition to retained earnings in 2020. (10 points)

   2. Prepare Proforma Balance Sheet for 2020. (10 points)

   3. Calculate the amount of external financing needed in 2020. What financing options are available for the company? (5 points)

   4. Assuming that the company operated at 75% capacity in 2019, re-calculate Proforma Total Assets in 2020. (5 points)

   5. How would you approach predicting next year's sales? Explain. (5 points)

Answer 1

Answer:- Summarized the data and information provided in the question, Assod coop's follow 2019 financial statements @ Assol corporation : Proforma Income Statement; kost 2019 2020 sales $7,900 $9,085 $5,500 $ 6,325 Taxable income $2,400 $2,760 Taxes at 25% $600 Net Income $1,800 $2,070 $690 Dividend at 40% $720 $828 Addition to RE $1,000 $1,242

$7,942 Assol corporation Proforoma of Balance sheet current Assets $4,4-85 cuttent liabilities $2,415 fixed Assets $9,890 Long-term debt $4,018 Equity Total | $14,375 Total $19,245 ③ Amount of external funds needed in 2020: 2019 2020 current Assets $3,900 $4,485/ 15% increase fixed Assets $8,000 $9,890|15% increase needed since no capacity available $12,500 $14,375 buttent liabilities $2,100 $2,415 15% increase Long term debt $3,900 $3,700 Equity $6,700 47942 Total liabilities & equity $12,500 $14,057 External funds needed $318 (total total assets liabilities Financing options Raise long term debt Issue equity.

(4) Amount of external funds needed in 2020, , 2019 2020 custent Assets $3,900 $4,485 15°/ increase fixed Assets $8,000 $8,600 no addition needed las capacity is available for increased sales. Total assets $12,500 $3,085 ② Predicting sales next year: ;). Based on post performance. si). competition impact. (11) General economy conditions like GDP growth, employement etc., fo) Demand for products. w market shade.
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