Stevens Textile\'s 2015 financial statements are shown below: Balance Sheet as o

Question

Stevens Textile's 2015 financial statements are shown below:

Balance Sheet as of December 31, 2015 (Thousands of Dollars)

Income Statement for December 31, 2015 (Thousands of Dollars)

Suppose 2016 sales are projected to increase by 25% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.

What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.
Notes payable (including line of credit)     $   

Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0    Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600    Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860    Total assets $29,160    Total liabilities and equity $29,160

Explanation / Answer

2015 Forecast Basis 2016 Sales 36000 1.25 x Sales 45,000 Operating Costs 32,440 .9011 x sales (16) 40,550 EBIT 3,560 4,451 Interest 460 .1 x Debt (06) 560 EBT 3,100 3,891 Taxes (40%) 1,240 1,556 Net Income 1,860 2,334 Dividends 837 1050 Addition to RE 1,023 1,284 Forecast Basis % Pro Forma after 2015 2016 Sales Additions Pro Forma Financing Financing Cash 1,080 1080/36000=0.03 1,350 1,350 Acc. Rec. 6480 0.19 1220 1,220 Inventories 9000 0.25 11250 11,250 Total Curr. Assets 16,560 13,820 13,820 Fixed Assets 12600 0.35 15750 14490 Total Assets 29,160 29,570 14490 Acc. Payable 4320 0.12 5400 4968 Accruals 2880 0.08 3600 3312 Notes Payable 2100 2100 2674 4774 Total Curr. Liablities 9300 11100 13054 Long-term debt 3500 3500 3500 Total Debt 12800 14600 16554 Common Stock 3500 3500 3500 Retained Earnings 12860 1,284 14,144 14,144 Total Liablities and Eq. 29160 32244 34198 AFN = 2,674

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