You have available the Income Statement for 2015 and the Balance Sheet as of the

Question

You have available the Income Statement for 2015 and the Balance Sheet as of the fiscal year end 2015 for Anthony & Co., all dollar amounts are in thousands.            Note that:

          -Anthony’s long-term debt is being reduced at the rate of 20 per year;

-Anthony’s has no plans to expand its property;

-Anthony’s 2016 sales are forecast to be $5,000, and,

-Anthony’s tax rate is 20%.

1) Use the percent of sales approach to estimate the amount of external financing Anthony & Co. will need by year-end 2016.

2) Use the cash cycle approach to estimate the amount of external funding Anthony & Co. will need by year-end 2016.

3) Why are these estimates different?

Income Statement Sales 4,000 Cost of Goods Sold 3,000 Gross Profit 1,000 Operating Expenses 800 Interest Expense 40 Net Income Before Taxes 160 Provision for Taxes 32 Net Income 128 Balance Sheet Cash 80 Accounts Receivable 400 Inventory 600      Current Assets 1,080 Property 200      Total Assets 1,280 Notes Payable, Bank 240 Accounts Payable 360 Long-term Debt, Current 20      Current Liabilities 620 Long-term Debt 160      Total Liabilities 780 Net Worth 500      Total Liabilities & Net Worth 1,280

Explanation / Answer

(1)    current percentage of sale of debt =$160 / 4000 * 100 = 4%

   Estimated amount of external Financing = 5000 * 4% - { 20% * [5000 * 4%] }

= 200 - 40

= $160

   Note:- Next year sale is $5000 and 20% reduce in long term debt

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