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 20% 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

Calculation of Additional Fund requirement based on forecasting of 20% increment

Income Statement:

Sales = 36000 * 1.20 = 43200.00

Opearing costs = 32400 * 1.20 = 38928.00

EBIT = 4272.00

Interest (Balance of debt at the beginning (i.e. (3500+2100)*10%)) = 560.00

Pre tax earnings = 3712.00

Tax @ 40% = 1485.00

Net Income = 2227.00

Dividends @ 45% = 1002.24

Addition to retained earnings = 1224.96

Forecasted Balance Sheet as of 31st Dec, 2016

Assets Liabilties

Cash 1080.00 Accounts Payable (4320*1.2) 5184.00

Receiable (6480*1.2) 7776.00 Accural (2880*1.2) 3456.00

Inventory (9000*1.2) 10800.00 Notes payable (remains constant) 2100.00

Mortgage Bonds 3500.00

Total current Assets 19656.00 Common Stock 3500.00

Net Fixed Assets(remains constant) 12600.00 Retained Earnings (12860+1225) 14084.96

Line of Credit (Balance amount) 431.04

Total Assets 32256.00 Total Liabilities 32256.00

Therefore additional funds required is 431.04 $

Notes payable including line of credit 2531.04 $

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