Question

​(Financial forecasting—percent of sales​) The balance sheet of the Boyd Trucking Company​ (BTC) is shown in the popup​ window:

Boyd Trucking Company Balance​ Sheet, December​ 31, 2015​ ($ Millions)
Current assets:	​$9.80		Accounts payable:	​$4.20
Net fixed assets:	14.00		Notes payable:	0
Total:	$23.80		Bonds payable:	9.80
			Common equity:	9.80
			Total:	$23.80

BTC had sales for the year ended December​ 31, 2015, of ​$28.00 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends.​ Thus, BTC generates no funds from its earnings that can be used to expand its operations.​ (Assume that depreciation expense is just equal to the cost of replacing​ worn-out assets.)

a. If BTC anticipates sales of ​$40.00 million during the coming​ year, develop a pro forma balance sheet for the firm on December​ 31, 2016. Assume that current assets vary as a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.

b. How much new financing will BTC need in​ 2016?

c. What limitations does the percent of sales forecast method suffer​ from? Discuss briefly.

Answer 1

Here is solution of your question. If doubt please discuss.All the best