Question

At the most recent strategic planning meeting, the board of directors of your company has voted...

At the most recent strategic planning meeting, the board of directors of your company has voted to issue additional stock to raise capital for major expansions for the company in the next five years. The board is considering $5 billion. Take the 2017 financial statements and prepare a set of projected financial statements based on the given assumptions. The CEO requests that you prepare a written report (including the financial statements) for her.

A. Generate a projected income statement based on the given scenario.

B. Analyze the impact on the income statement based on the given scenario.

C. Generate a projected statement of retained earnings based on the given scenario.

D. Analyze the impact on the statement of retained earnings based on the given scenario.

E. Generate a projected balance sheet based on the given scenario.

F. Analyze the impact on the balance sheet based on the given scenario.

G. Generate a projected cash flow statement based on the given scenario.

H. Analyze the impact on the cash flow statement based on the given scenario

Income statements (value in 000's)

Period Ending

1/28/2017

1/30/2016

Total Revenue

$69,495,000

$73,785,000

Cost of Revenue

$48,872,000

$51,997,000

Gross Profit

$20,623,000

$21,788,000

Research and Development

$0

$0

Sales, General and Admin.

$13,356,000

$14,665,000

Non-Recurring Items

$0

$0

Other Operating Items

$2,298,000

$2,213,000

Operating Income

$4,969,000

$4,910,000

Additional income/expense items

$0

$620,000

Earnings Before Interest and Tax

$4,969,000

$5,530,000

Interest Expense

$1,004,000

$607,000

Earnings Before Tax

$3,965,000

$4,923,000

Income Tax

$1,296,000

$1,602,000

Minority Interest

$0

$0

Equity Earnings/Loss Unconsolidated Subsidiary

$0

$0

Net Income-Cont. Operations

$2,669,000

$3,321,000

Net Income

$2,737,000

$3,363,000

Net Income Applicable to Common Shareholders

$2,737,000

$3,363,000

Statement of retained earnings

                                                                             2017                                                                                                                                                                                          

Retained earnings, 2016                           8,188,000            

plus net income                                         2,737,000

total                                                       =10,925,000

minus dividends                                      (1,356,000)

retained earnings, 2017                            9,569,000

Balance Sheet

Current Assets

Cash and Cash Equivalents

$2,512,000

$4,046,000

Short-Term Investments

$0

$0

Net Receivables

$0

$0

Inventory

$8,309,000

$8,601,000

Other Current Assets

$1,169,000

$1,483,000

Total Current Assets

$11,990,000

$14,130,000

Long-Term Assets

Long-Term Investments

$0

$0

Fixed Assets

$24,658,000

$25,217,000

Goodwill

$0

$0

Intangible Assets

$0

$0

Other Assets

$783,000

$915,000

Deferred Asset Charges

$0

$0

Total Assets

$37,431,000

$40,262,000

Current Liabilities

Accounts Payable

$10,989,000

$11,654,000

Short-Term Debt / Current Portion of Long-Term Debt

$1,718,000

$815,000

Other Current Liabilities

$1,000

$153,000

Total Current Liabilities

$12,708,000

$12,622,000

Long-Term Debt

$11,031,000

$11,945,000

Other Liabilities

$1,878,000

$1,915,000

Deferred Liability Charges

$861,000

$823,000

Misc. Stocks

$0

$0

Minority Interest

$0

$0

Total Liabilities

$26,478,000

$27,305,000

Stock-Holders Equity

Common Stocks

$46,000

$50,000

Capital Surplus

$5,661,000

$5,348,000

Retained Earnings

$5,884,000

$8,188,000

Treasury Stock

$0

$0

Other Equity

($638,000)

($629,000)

Total Equity

$10,953,000

$12,957,000

Total Liabilities & Equity

$37,431,000

$40,262,000

Cash Flow

Net Income

$2,737,000

$3,363,000

Cash Flow-Operating Activities

Depreciation

$2,298,000

$2,213,000

Net Income Adjustments

$508,000

($812,000)

Changes in Operating Activities

Accounts Receivable

$0

$0

Changes in Inventories

$293,000

($316,000)

Other Operating Activities

$36,000

$227,000

Liabilities

($543,000)

$579,000

Net Cash Flow-Operating

$5,436,000

$5,958,000

Cash flows-Investing Activities

Capital Expenditures

($1,547,000)

($1,438,000)

Investments

$28,000

$24,000

Other Investing Activities

$46,000

$1,922,000

Net Cash Flows-Investing

($1,473,000)

$508,000

Cash Flows-Financing Activities

Sale and Purchase of Stock

($3,485,000)

($3,183,000)

Net Borrowings

($664,000)

($85,000)

Other Financing Activities

$0

$0

Net Cash Flows-Financing

($5,497,000)

($4,630,000)

Effect of Exchange Rate

$0

$0

Net Cash Flow

($1,534,000)

$1,836,000

Homework Answers

Answer #1
A. PROJECTED INCOME STATEMENT
Particulars Year ending Year ending Year ending   projection Basis
30-01-2016 ($) 28-01-2017 ($) 28-01-2018 ($) ratio
Total revenue 73785000 69495000 65454429 0.94
Cost of revenue 51997000 48872000 45818100 0.70 Cost margin
Gross Profit 21788000 20623000 19636329 0.30 GP margin
Sales, General & 14665000 13356000 12717006 0.65 as % of GP
Admin Expenses
Other operating item 2213000 2298000 2188056 0.11 as % of GP
Operating Income 4910000 4969000 4731267
Additional Income 620000
Interest expense 607000 1004000 955965 0.20 as % of op inc
Earnings before tax 4923000 3965000 3775302
Income Tax 1602000 1296000 1233995 0.33 as % of EBT
Net Income 3321000 2669000 2541306

B. IMPACT ON INCOME STATEMENT

The income has declined as compared to the previous year 2017.

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