1. Forecasted Statements and Ratios
Upton Computers makes bulk purchases of small computers, stocksthem in conveniently located warehouses, ships them to its chain ofretail stores, and has a staff to advise customers and help themset up their new computers. Upton's balance sheet as of December31, 2016, is shown here (millions of dollars):
| Cash | $ 3.5 | | Accounts payable | $ 9.0 |
| Receivables | 26.0 | | Notes payable | 18.0 |
| Inventories | 58.0 | | Line of credit | 0 |
| Total current assets | $ 87.5 | | Accruals | 8.5 |
| Net fixed assets | 35.0 | | Total current liabilities | $ 35.5 |
| | | Mortgage loan | 6.0 |
| | | Common stock | 15.0 |
| | | Retained earnings | 66.0 |
| Total assets | $122.5 | | Total liabilities and equity | $122.5 |
Sales for 2016 were $375 million and net income for the year was$11.25 million, so the firm's profit margin was 3.0%. Upton paiddividends of $4.5 million to common stockholders, so its payoutratio was 40%. Its tax rate was 40%, and it operated at fullcapacity. Assume that all assets/sales ratios, (spontaneousliabilities)/sales ratios, the profit margin, and the payout ratioremain constant in 2017. Do not round intermediatecalculations.
A. If sales are projected to increase by $50 million, or 13.33%,during 2017, use the AFN equation to determine Upton's projectedexternal capital requirements. Enter your answer in millions. Forexample, an answer of $1.2 million should be entered as 1.2, not1,200,000. Round your answer to two decimal places.
Answer: (in millions)
B. Using the AFN equation, determine Upton's self-supportinggrowth rate. That is, what is the maximum growth rate the firm canachieve without having to employ nonspontaneous external funds?Round your answer to two decimal places.
Answer: (in %)
C. Use the forecasted financial statement method to forecastUpton's balance sheet for December 31, 2017. Assume that alladditional external capital is raised as a line of credit at theend of the year and is reflected (because the debt is added at theend of the year, there will be no additional interest expense dueto the new debt).
Assume Upton's profit margin and dividend payout ratio will be thesame in 2017 as they were in 2016. What is the amount of the lineof credit reported on the 2017 forecasted balance sheets?(Hint: You don't need to forecast the income statementsbecause the line of credit is taken out on last day of the year andyou are given the projected sales, profit margin, and dividendpayout ratio; these figures allow you to calculate the 2017addition to retained earnings for the balance sheet withoutactually constructing a full income statement.) Round your answersto the nearest cent.
Upton Computers
Pro Forma Balance Sheet
December 31, 2017
(Millions of Dollars) |
| Cash | $ |
| Receivables | $ |
| Inventories | $ |
| Total current assets | $ |
| Net fixed assets | $ |
| Total assets | $ |
| Accounts payable | $ |
| Notes payable | $ |
| Line of credit | $ |
| Accruals | $ |
| Total current liabilities | $ |
| Mortgage loan | $ |
| Common stock | $ |
| Retained earnings | $ |
| Total liabilities and equity | $ |
