Question

Dahlia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 20 percent to $480 million. Current assets, fixed assets, and short-term debt are 20 percent, 70 percent, and 10 percent of sales, respectively. Charming Florist pays out 20 percent of its net income in dividends. The company currently has $125 million of long-term debt and $53 million in common stock par value. The profit margin is 1

a. Prepare the current balance sheet for the firm using the projected sales figure.

b. Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year?

c-1. Prepare the firm’s pro forma balance sheet for the next fiscal year.

c-2. Calculate the external funds needed.

5 percent.

Answer 1

125000000 Answer: a) calculate the current Balancesheet.:- current Sales = projected sales 1+ rate #grow. - $480,000,000 +10% • $480,000,000/1.20 :. Current Sales = $400,000,000 change in sales = projecled sales - current Sales - $480,000,000 - $ 400,000,000 .: change in sales = $80,000.000. Current Balance sheet: Assets Amount Liabilities Assets Current assets _ $80,000,000 shortherm Debt $40,000,000 ($ 400,000,000 x 20%) 400.000,000 x10%] Fixed Assets $280,0000od Long-Term debt [$ 400,000,000x70% common stock $53,000,000 Accumulated Retained $149,000,000 . Cavйія Total equity $195.000.000 Total Gabilities Total Assets 360,000.cool murgaoning and equity $360,000,000 working Note? Accumulated Retained earnings - Total assetsr short term debt - Long term deft common stock. $360,000,000 - $40.000.000- $185000.000- $53,000,000. is Accumulated Retained earnings = $149,000,000. Total equity = common stocke + Accumulated vetained earning $53,000,000 + $149,000,000. .: Total Equity = $195,000,000. b) Calculation of the External finance needed. IEFN):- EFN= Sales xa sales - Sobe * -sales-(profit margin x projected sales) x (1-payout ratio) Asales change in sales 20% + 1.20) $80.000000 - (0.10)* $80,000,000.-0154 $400,00spod .. EFN= $56,000,000 *(1-02)

C-1) calculate the Net Income:- Net Income = profit margin x projected sales = OV5 400,000,000. .. Net Income = $72,000,000. s calculation of the additions to retained earnings. Additions to retained earnings = Net income *ll-payout ratio = $72,000,000 (1-0.20) -. Additions to retained earningo = $ 57,600,000. b calculate accumulated selained earnings.:- Accumulated retained earnings = current year retained earnings + Additions to velained earnings ! $144,000,000+ $57,600,000. ... Accumulated Retained earnings = $199,600,000 Balance sheet text fiscal year Asseto - Amount Liabilities Amount current Assets $96.000000 short term debla @ 48.000000 1$ 480.000.000 x 207] {$480,000,000 X 10') Fixed assets 4336000.00 Long term debt (6) $125000000 $480,000000 x 702] common stock 53.000000 Accumulated retained - earnings a 1991,600,000 Total equeilge $252,600.000 Total Assets qvolal liabilis and equiry $40560oced $43 2009ood Ž +b+c) (-2) calculate the external finance needed (EFN) :- EEN = Total Assets – Total liabilities and egleity. - $ 432,000,000-$425,600,000 :-EFN= $6,400,000