Problem 17-7:

PRO FORMA INCOME STATEMENT

 

At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

 

Sales                                                                           $3,000

Operating costs excluding depreciation                      2,450_

EBITDA                                                                     $ 550

Depreciation                                                                250__

EBIT                                                                           $ 300

Interest                                                                        125__

EBT                                                                             $ 175

Taxes (40%)                                                                70___

Net income                                                                  $ 105

 

Looking ahead to the following year, the company’s CFO has assembled this information:

  1. Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
  2. Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.
  3. Depreciation is expected to increase at the same rate as sales. Interest costs are expected to remain unchanged.
  4. The tax rate is expected to remain at 40%.

 

On the basis of that information, what will be the forecast for Roberts’ year-end net income?

 

Problem 17-8:

 

LONG-TERM FINANCING NEEDED

At year-end 2015, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2015 were $2.5 million, are expected to increase by 25% in 2016. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2015, and retained earnings were $295,000. Ambrose plans to sell new common stock in the amount of $75,000. The firm’s profit margin on sales is 6%; 60% of earnings will be retained.

 

  1. What were Ambrose’s total liabilities in 2015?
  2. How much new long-term debt financing will be needed in 2016? (Hint: AFN − New stock = New long-term debt.)
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