Pro Forma Statement of Financial Position Assets Liabilities and Owners Equity

Pro forma statement of financial position assets

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Pro Forma Statement of Financial Position Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 30,360 Accounts payable $ 81,600 Excess Cash 54,595.59 Accounts receivable 48,840 Notes payable 17,000 Inventory 104,280 Total $ 98,600 Total $ 238,075.59 Long-term debt 216,443.59 Fixed assets Net plant and Owners’ equity equipment 495,600 Common stock and paid-in surplus $ 140,000 Retained earnings 278,632 Total $ 418,632 Total liabilities and owners’ Total assets $ 733,675.59 equity $ 733,675.59 The excess cash has an opportunity cost that we discussed earlier. Increasing fixed assets would also not be a good idea since the company already has enough fixed assets. A likely scenario would be the repurchase of debt and equity in its current capital structure weights. The company’s debt-assets and equity assets are: Debt-assets = 0.75255 / (1 + 0.75255) = 0.4294 Equity-assets = 1 / (1 + 0.75255) = 0.5706
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So, the amount of debt and equity needed will be: Total debt needed = 0.4294($679,080) = $291,600 Equity needed = 0.5706($679,080) = $387,480 So, the repurchases of debt and equity will be: Debt repurchase = ($98,600 + 216,443.59) – 291,600 = $ 23,443.59 Equity repurchase = $418,632 – 387,480 = $31,152 Assuming all of the debt repurchase is from long-term debt, and the equity repurchase is entirely from the retained earnings, the final pro forma balance sheet will be: HOPINGTON TOURS INC. Pro Forma Statement of Financial Position Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 30,360 Accounts payable $ 81,600 Accounts receivable 48,840 Notes payable 17,000 Inventory 104,280 Total $ 98,600 Total $ 183,480 Long-term debt 193,000 Fixed assets Net plant and Owners’ equity equipment 495,600 Common stock and paid-in surplus $ 140,000 Retained earnings 247,480 Total $ 387,480 Total liabilities and owners’ Total assets $ 679,080 equity $ 679,080
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Challenge 30. (LO2, 5) The pro forma income statements for all three growth rates will be: HOPINGTON TOURS INC. Pro Forma Comprehensive Statement of Income 15 % Sales Growth 20% Sales Growth 25% Sales Growth Sales $1,068,350 $1,114,800 $1,161,250 Costs 831,450 867,600 903,750 Other expenses 21,850 22,800 23,750 EBIT $ 215,050 $ 224,400 $233,750 Interest 14,000 14,000 14,000 Taxable income $ 201,050 $ 210,400 $219,750 Taxes (35%) 70,367.50 73,640 76,912.50 Net income $ 130,682.50 $ 136,760 $142,837.50 Dividends $ 39,204.75 $ 41,028 $42,851.25 Add to RE 91,477.75 95,372 99,986.25 We will calculate the EFN for the 15 percent growth rate first. Assuming the payout ratio is constant, the dividends paid will be: Dividends = ($33,735/$112,450)($130,682.50) Dividends = $39,204.75 And the addition to retained earnings will be: Addition to retained earnings = $130,682.50 Addition to retained earnings = $91,477.75 The new retained earnings on the pro forma balance sheet will be: New retained earnings = $182,900 + 91,477.75 New retained earnings = $274,377.75 The pro forma balance sheet will look like this: 15% Sales Growth : HOPINGTON TOURS INC. Pro Forma Statement of Financial Position Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 29,095 Accounts payable $ 78,200 Accounts receivable 46,805 Notes payable 17,000 Inventory 99,935 Total $ 95,200 Total $ 175,835 Long-term debt 158,000 Fixed assets Net plant and Owners’ equity equipment 474,950 Common stock and paid-in surplus $ 140,000 Retained earnings 274,377.75 Total $ 414,377.75 Total liabilities and owners’ Total assets $ 650,785 equity $ 667,577.75
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So the EFN is: EFN = Total assets – Total liabilities and equity EFN = $650,785 – 667,577.75 EFN = –$16,792.75 At a 20 percent growth rate, and assuming the payout ratio is constant, the dividends paid will be: Dividends = ($33,735/$112,450)($136,760) Dividends = $41,028
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  • Fall '12
  • Danny
  • Balance Sheet, Generally Accepted Accounting Principles, EFN

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