25. Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar

FIN 200

Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 3 Solution

Assignment: Pro Forma Statements

Chapter 4

25. Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales.

BALANCE SHEET
(in $ millions)
Assets Liabilities and Stockholders’ Equity
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 5 Accounts payable . . . . . . . . . . . . . . $15
Accounts receivable. . . . . . . . . . . . . 15 Accrued wages . . . . . . . . . . . . . . . . 6
Inventory . . . . . . . . . . . . . . . . . . . . . 30 Accrued taxes . . . . . . . . . . . . . . . . . 4
Current assets . . . . . . . . . . . . . . . 50 Current liabilities . . . . . . . . . . . . . 25
Fixed assets . . . . . . . . . . . . . . . . . . 40 Notes payable . . . . . . . . . . . . . . . . . 30
Common stock . . . . . . . . . . . . . . . . . 15
Retained earnings . . . . . . . . . . . . . . 20
Total assets . . . . . . . . . . . . . . . . . . . $90 Total liabilities and
stockholders’ equity . . . . . . . . . . . $90

Carter Paint has an aftertax profit margin of 5 percent and a dividend payout ratio of 30 percent.
If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Assume Carter Paint is already using assets at full capacity and that plant must be added.)

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16. J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as

FIN 200

Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 3 Solution

Assignment: Pro Forma Statements

Chapter 4

16. J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as:
September (actual) . . . . . . . . . . . . . $70,000
Fourth Quarter
October . . . . . . . . . . . . . . . . . . . . . . $60,000
November . . . . . . . . . . . . . . . . . . . . 55,000
December . . . . . . . . . . . . . . . . . . . . 80,000
Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent in the following month, and 10 percent are never collected. Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December).

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FIN 200: Week Three Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 3 Solution

Assignment: Pro Forma Statements

• Resource: Ch. 4 of Foundations of Financial Management
• Due Date: Day 7 [post to the Individual forum]
• Complete the Comprehensive Problem: Landis Corporation on p. 118.
• Post the assignment as an attachment.

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The Landis Corporation had 2008 sales of $100 million. The balance sheet items that
vary directly with sales and the profit margin are as follows:
Chapter 4 Financial Forecasting

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 15
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 40
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 15
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Profit margin after taxes . . . . . . . . . . . . . . . . . . 6%
.com/bhd13e
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings
at the end of 2008 was $33 million. Common stock and the company’s long-term
bonds are constant at $10 million and $5 million, respectively. Notes payable are currently
$12 million.

a. How much additional external capital will be required for next year if sales
increase 15 percent? (Assume that the company is already operating at full
capacity.)

b. What will happen to external fund requirements if Landis Corporation reduces
the payout ratio, grows at a slower rate, or suffers a decline in its profit margin?
Discuss each of these separately.

c. Prepare a pro forma balance sheet for 2009 assuming that any external funds
being acquired will be in the form of notes payable. Disregard the information in
part b in answering this question (that is, use the original information and part a
in constructing your pro forma balance sheet).

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