uppose 2014 sales are projected to increase by 10% over 2013 sales. Use the fore

Question

uppose 2014 sales are projected to increase by 10% over 2013 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2014. The interest rate on all debt is 6%, 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 2013, 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 dollar. Do not round intermediate calculations.

What is the resulting total forecasted amount of the line of credit? Round your answer to the nearest dollar. Do not round intermediate calculations.
Notes payable     $  

Total assets $    AFN $    Stevens Textile's 2013 financial statements are shown below: Balance Sheet as of December 31, 2013 (Thousands of Dollars) Cash Receivables Inventories $1,080 Accounts payable 4,320 2,880 0 2,100 $9,300 3,500 3,500 12,860 $29,160 6,480 Accruals 9,000 Line of credit Total current assets $16,560 Notes payable Total current liabilities Mortgage bonds Common stock Retained earnings Net fixed assets 12,600 $29,160 Total liabilities and equity Total assets Income Statement for December 31, 2013 (Thousands of Dollars) Sales Operating costs $36,000 32,440 $ 3,560 460 3,100 1,240 $1,860 $ 837 1,023 Earnings before interest and taxes Interest Pre-tax earnings Taxes (40%) Net income Dividends (45%) Addition to retained earnings

Explanation / Answer

2013 Forecast Basis 2014 Sales $ 36,000 1.10 x Sales $ 39,600 Operating Costs $ 32,440 .9011 x sales $ 35,684 EBIT $   3,560 $   3,916 Interest $      460 .06 x Debt (13) $      336 EBT $   3,100 $   3,580 Taxes (40%) $   1,249 $   1,432 Net Income $   1,860 $   2,148 Dividends $      837 $      967 Addition to RE $   1,023 $   1,182 Debt in 2013 = Notes payable + Mortgage bonds = 3500 + 2100 Forecast Basis % Pro Forma after 2013 2014 Sales Additions Pro Forma Financing Financing Cash $   1,080.00 0.0273 1,188 1,188 Acc. Rec. $   6,480.00 0.1636 7,128 7,128 Inventories $   9,000.00 0.2273 9,900 9,900 Total Curr. Assets $ 16,560.00 18,216 18,216 Fixed Assets $ 12,600.00 0.3182 13,860 13,860 Total Assets $ 29,160.00 32,076 32,076 Acc. Payable $   4,320.00 0.1091 4,752 4,752 Accruals $   2,880.00 0.0727 3,168 3,168 Notes Payable $   2,100.00 2,100 1,014 3,114 Total Curr. Liablities $   9,300.00 10,020 11,034 Long-term debt $   3,500.00 3,500 3,500 Total Debt $ 12,800.00 13,520 14,534 Common Stock $   3,500.00 3,500 3,500 Retained Earnings $ 12,860.00 $   1,182 14,042 14,042 Total Liablities and Eq. $ 29,160.00 31,062 32,076 AFN = 1014

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