Part A: A quarterly Preferred Stock Dividend of $45,000 will be paid in December, as will a 25 cent per share Common Dividend.
A minimum cash balance of $1,500,000 is dictated by top management.
Ending cash in September is $100,000 (and, thus a notes payable balance of $1,900,000 is on the books at that time).
How large a credit line should Hammarlund request from its Bank?
Assumption for use in the 2016 Proforma Income Statement
Sales forecast for 2016: $70,000,000
What do you forecast Hammarlund's Earnings Per Share to be in 2016?
Assumptions for use in the 2016 Proforma Balance Sheet
A Minimum Cash & Marketable Securities Balance of $1.5 million is desired. Accounts Receivable will equal 45 days of forecasted sales.
Ending Inventory will increase to $20 million.
Net Fixed Assets will increase to $37 million.
Accounts Payable will shrink to $2.2 million as creditors demand faster payments.
Notes Payable will be the value you calculate for December bank borrowings in your Cash Budget.
Long-term debt, common and preferred stock will be unchanged from 2015.
Retained earnings will increase based upon the estimate in your proforma income statement for 2016 less a $1 per share common dividend.
What amount of external financing should be obtained? What securities should be issued to obtain the financing? (Please consider the analysis you did in Part A in answering this question).
Part B: In order to assess short-term and longer-term financing needs, the Board would like you to prepare a Quarterly Cash Budget for the 4th quarter of 2016. They selected this quarter because it is expected to contain the largest bank borrowing needs of the year. Also, the Board would like you to prepare a proforma Income Statement for 2016 using the Percent of Sales method, and a proforma Balance Sheet for 2016 using the Judgmental Method. The Board Directed Mr. Hammarlund and Mr. Miller to make all relevant personnel and information available to you, and they have done so. While much of the information needed is provided below, you will also need to refer to the financial statements and other information previously provided with Part A of the project. With this information you can develop the necessary cash budget and proformas and answer the questions related to the Cash Budget, proforma Income Statement, and Proforma Balance Sheet.
Assumptions for use in the Cash Budget - Actual or forecast sales (000s):
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August
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September
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October
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November
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December
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January
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$3,000,000
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$4,000,000
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$7,000,000
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$7,000,000
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$5,000,000
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$10,000,000
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All sales are on credit. Ten percent of the accounts receivable are collected in the month of sale, 50% are collected in the following month, and 40% are collected in the second month after the sale.
No additional receipts are expected.
Purchases are 35% of the NEXT month's forecast sales.
Additional production costs are expected to be $1,000,000, $700,000, and $1,500,000 in October, November, and December, respectively.
S, G & A expense is budgeted at $1,200,000 per month
Expenditures related to plant technology upgrades will be $500,000 each month
Income Taxes of $500,000 will be paid in December
A semi-annual interest payment of $420,000 will be paid in October.