Question

Long-term Financial Planning In-class Exercise The most recent financial statements for 7 Seas, Inc. are shown here Income Statement Balance Sheet Sales Costs Taxable income Taxes (35%) Net income $4,600 Current assets $6,084 Current liabilities S1,244 3840 Fixed assets 5,183 Long-term debt 2,487 Equity 760 266 Total $494 $11,267 Total 11,267 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. Like every other firm in its industry, next year's sales are projected to increase by exactly 16 percent. 1. Construct the Pro Forma Statements. 2. What is the dividend next year?3 What is the external financing need?

Answer 1

1)	INCOME STATEMENT	Recent Year	Basis for projections	Proforma    Next Year
		$     4,600.00	+16%	$      5,060.00
	COGS	$   3,840.00	83.47% of sales	$      4,454.40
	Taxable income	$      760.00		$          605.60
	Taxes (35%)	$      266.00		$       211.96
	Net income	$      494.00		$       393.64
	Dividends (50%)	$      247.00		$       196.82
	Addition to RE	$      247.00		$       196.82
	BALANCE SHEET
	Current assets	$   6,084.00	132.26% of sales	$      7,057.44
	Fixed assets	$   5,183.00	112.67% of sales	$      6,012.28
	Total assets	$ 11,267.00		$    12,393.70
	Current liabilities	$   1,244.00	27.04% of sales	$      1,443.04
	Long term debt	$   2,487.00		$      2,487.00
	Equity	$   7,536.00	+ 196.82	$      7,732.82
	Total liabilities and equity	$   11,267.00		$    11,662.86
2)	Dividend next year	$         196.82
3)	EFN = 12393.70-11662.86 =	$         730.84