Preparation of Pro Forma Balance Sheet.
Pro Forma balance sheet------ Peabody and Peabody has 2006 sales of $10million. It wishes to analyze expected performance and financing needs for 2008-2 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:
a. Accounts receivable, 12%
b. Inventory, 18%
c. Accounts payable, 14%
d. 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 required in 2007, and equipment costing $850,000 will be purchased in 2008. Total depreciation in 2007 is forecast as $290,000, and in 2008 $390,000 of deprecation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2008.
(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 2007 and $12 million in 2008.
(10) The December 31, 2008 balance sheet is given below
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Peabody & Peabody
Balance Sheet
31-Dec-06 $ in (000)
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Assets
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Liabilities & Stockholders' Equity
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Cash
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$400
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Accounts payable
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$1,400
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Marketable securities
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$200
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Accruals
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400
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Accounts receivable
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1200
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Other Current Liabilities
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80
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Inventories
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1800
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Total Current Liabilities
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$1,880
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Total current Assets
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$3,600
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Long term Debt
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$2,000
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Net fixed assets
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4000
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Common equity
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$3,720
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Total assets
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$7,600
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Total Liabilities & stockholders' equity
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$7,600
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A. Prepare a pro forma balance sheet dated December 31, 2008
B. Discuss the financing changes suggested by the statement prepared in part A