Project #3740 - Preparing EFN

Problem Set for Module 2

 

The Rologene Company

200X Balance Sheet

 

Assets

 

  

 

 

Liabilities

 

 

 

 

 

 

Accounts Payable              

  35,000

Cash

  40,000

 

 

 

Accruals

  25,000

Marketable Securities

  10,000

 

 

 

Current Note Payable

  20,000

Accounts Receivable

  70,000

 

 

 

Total Current Liabilities

  80,000

Inventory

  80,000

 

 

 

Bonds

240,000

Total Current Assets

200,000

 

 

 

Total Liabilities

320,000

Property Plant & Equipment

220,000

 

 

 

Retained Earnings

  40,000

Total Assets

420,000

 

 

 

Common Stock

  60,000

 

 

 

 

 

Total Liabilities and Equity

420,000

 

Other Information:

·   200X sales = $800,000

·   200X profit margin = 5%

·   200X payout ratio = 35%

 

Assumptions for 200Y:

·        Expected change in sales (ΔS)  =  $200,000

·        200X profit margin and payout ratios will be in effect in 200Y

·        Property, Plant, and Equipment (fixed assets) are expected to increase by $90,000

·        Depreciation expense for 200Y = $20,000

·        Company holds marketable securities in a semi-permanent savings account

·        The Current Note Payable will not be rolled-over and is to be paid off in year 200Y

 

 

1.      Prepare the EFN equation for the Rologene Company using the information above.  Show your work, label your computations and clearly mark your answer.

 

 

 

2.     Prepare a Proforma Balance Sheet Based on the Assumptions and Historical Financial Statement Above. 

 

Assets

Place your answer here

Cash

 

Marketable Securities

 

Accounts Receivable

 

Inventory

 

Total Current Assets

 

Property Plant & Equipment

 

Total Assets

 

 

 

Liabilities

 

Accounts Payable              

 

Accruals

 

Current Note Payable

 

Total Current Liabilities

 

Bonds

 

Total Liabilities

 

Stockholder Equity

 

EFN

 

Total Liabilities and Equity

 

 

 

 

3.     In the example above, the company has a ratio of sales/inventory of 10.  If they could improve that ratio in 200Y to 12through better inventory management, what level of inventory would they need?  Show your work and prepare the second pass forecast for the company based on this new information.

 

Assets

Place your answer here

Cash

 

Marketable Securities

 

Accounts Receivable

 

Inventory

 

Total Current Assets

 

Property Plant & Equipment

 

Total Assets

 

 

 

Liabilities

 

Accounts Payable              

 

Accruals

 

Current Note Payable

 

Total Current Liabilities

 

Bonds

 

Total Liabilities

 

Stockholder Equity

 

EFN

 

Total Liabilities and Equity

 

 

 

 

4.      Without computing the entire 3rd pass balance sheet, determine what would happen to the EFN if:

a.      The profit margin increased to 7%

b.     The payout ratio decreased to 25%

c.      Both of the above happened at the same time

d.     Discuss the role of retaining earnings for a company that is attempting to grow.

Subject Business
Due By (Pacific Time) 03/30/2013 08:00 pm
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