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PROBLEM 9-1: PREPARING PRO FORMA FINANCIAL STATEMENTS

Comparative income

statements and balance sheets for Coca-Cola are shown below ($ millions).

                                                                                       Year 2        Year 1

Income Statement

Net Sales                                                                         $20,092          19,889

Cost of Sales                                                                   6,044          6,204

Gross Profit                                                                      14,048          13,685

Selling, general, and administrative                                7,893          9,221

Depreciation and amortization expense                          803             773

Interest expense (revenue)                                              (308)           292

Income Before tax                                                            5,660          3,399

Income tax expense                                                         1,691          1,222

Net Income                                                                       3,969          2,177

Outstanding shares                                                          3,491          3,481

Balance sheet

Cash                                                                                 $1,934          1,892

Accounts receivable                                                         1,882          1,757

Inventories                                                                       1,055          1,066

Other current assets                                                        2,300          1,905

Total Current Assets                                                        $7,171          6,620

Property, plant, and equipment                                        7,105          6,614

Accumulated Depreciation                                               2,652          2,446

Net property plant and equipment                                    4,453          4,168

Other long term assets                                                     10,793          10,046

Total Assets                                                                     $22,417          20,834

Accounts payable and Accrued Liabilities                       $3,679          3,905

Short term debt & Current maturities on long term debt  3,899          4,816

Income tax liabilities                                                         851             600

Total current liabilities                                                      $8,429          9,321

Deferred income taxes & other liabilities                         1,403          1,362

Long term debt                                                                 1,219          835

Total noncurrent liabilities                                                $2,622          2,197

Common Stock                                                                873             870

Capital surplus                                                                 3,520          3,196

Retain Earnings                                                               20,655          18,543

Treasury stock                                                                 13,682          13,293

Total Shareholders' Equity                                               11,366          9,316

Total Liabilities and shareholders' equity                         $22,417          $20,834

Required:

a) Use the following ratios to prepare a projected income statement, balance sheet and statement of cash flows for year 3.

Sales Growth                                                                                       1.02 %

Gross profit margin                                                                             69.92 %

Selling, general and administrative expense/sales                             39.28 %

Depreciation expense/ Prior year PPE gross                                     12.14 %

Interest expense/Prior year long-term debt                                          5.45 %

Income tax expense/Pretax income                                                    29.88 %

Accounts receivable turnover                                                             10.68

Inventory turnover                                                                                5.73

Accounts payable turnover                                                                  1.64

Taxes payable/Tax expense                                                               50.33%

Total assets/Stockholders' equity (financial leverage).                        2.06

Dividends per share                                                                            $1.37

Capital expenditures/Sales                                                                  5.91 %

b) Based on your initial projection, how much external financing (long-term debt or stockholder's equity will Coca Cola need to fund its growth at projected increases in sales?

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