Fin419 Principles of Managerial Finance: P4-18 Peabody & Peabody has 2015 sales of $10 million

Fin419 Principles of Managerial Finance

P4–18 Pro forma balance sheet
Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b.
(1) The percents of sales for items that vary directly with sales are as follows:
Accounts receivable, 12%
Inventory, 18%
Accounts payable, 14%
Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2016, and equipment costing $850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as $290,000, and in 2017 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2017.
(6) No sale or retirement of long-term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2016 and $12 million in 2017.
(10) The December 31, 2015, balance sheet follows.
Peabody & Peabody Balance Sheet December 31, 2015 ($000)
Assets Liabilities and stockholders’ equity
Cash 400 Accounts payable 1,400
Marketable securities 200 Accruals 400
Accounts receivable 1,200 Other current liabilities 80
Inventories 1,800 Total current liabilities 1,880
Total current assets 3,600 Long-term debt 2,000
Total liabilities 3,880
Net fixed assets 4,000 Common equity 3,720
Total assets $7,600 Total liabilities and stockholders’ equity $7,600 $7,600

a. Prepare a pro forma balance sheet dated December 31, 2017.
b. Discuss the financing changes suggested by the statement prepared in part a.
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