Planet Inc. wishes to construct a pro forma income statement and a pro forma balance sheet for the coming year using the following data.
1. Sales are forecast to grow by 5 percent from $809.5 million last year to $850 million in the coming year.
2. Cost of goods sold is expected to represent 72 percent of forecast sales.
3. Operating expenses are expected to represent 11 percent of forecast sales.
4. Depreciation expense on the firm's existing net fixed assets, which currently total $275 million, is expected to remain at $55 million per year for at least four more years.
5. Planet's marginal tax rate is expected to remain at 40 percent.
6. Planet is expected to continue its policy of paying out 10 percent of net income as dividends.
7. Planet's net profit margin last year was 5.2 percent.
8. Planet wishes to maintain a minimum cash balance of $8 million in the coming year.
9. The firm's accounts receivable are expected to equal about 15 percent of sales.
10. The firm's inventory has historically averaged about 12 percent of cost of goods sold.
11. Planet is planning to invest an additional $35 million in fixed assets that will be depreciated on a straight-line basis over a seven-year life.
12. The firm's accounts payable, which totaled $63.5 million at the end of last year, is expected to equal about 11 percent of cost of goods sold in the coming year.
13. Planet plans to maintain its notes payable of $42 million requiring annual interest of 5 percent, which totals $2.1 million.
14. The firm has $80 million of long-term debt that matures as a lump sum due and payable in full in five years. Annual interest of $4.8 million must be paid on this debt. 15. Planet has no preferred stock outstanding, and its retained earnings and common stock currently total $250 million. 16. Planet's total assets at the end of last year were $435 million.
a. Use the preceding data to prepare Planet's pro forma income statement for the coming year.
b. Use the data provided and your findings in part (a) to prepare Planet's pro forma balance sheet for the coming year. Use notes payable as the balancing figure and ignore any change in annual interest expense caused by the change in notes payable.
c. Explain the amount of notes payable used as the balancing figure in part (b). Indicate the resulting amount of the plug figure needed to create the balancing figure. Will Planet be able to fund its planned growth internally? Explain. Cd. Use Equation 15.2 along with Planet's relevant data to determine its external funds required (EFR). Compare this value with the plug figure you found in part (c), and explain in general terms why differences between these two values might result.
Equation:- EFR=((A/S) ΔS) - ((AP/S)ΔS) - (mS(1 + g)(1 - d))