Nonmal No Before Expansion-2018 Annual Revenue $20 million COGS 60% of revenue F
ID: 2815609 • Letter: N
Question
Nonmal No Before Expansion-2018 Annual Revenue $20 million COGS 60% of revenue Fixed Expenses $4 million Assets-$20 million; all financed through equity Corporate Tax Rate 25% All earnings paid as dividends CREATE A PRO-FORMA FINANCIAL STATEMENT At the start of 2019, the firm borrows $10 million to buy a new factory. Assume that the factory is available for production right away. The loan charges 8% simple interest. Revenue for 2019 jumps to $30 million and will increase by 15% in each subsequent year. COGS stay at the same percentage. Fixed costs increase to $4.5m and remain at that level. Part of the loan will be paid off each year from retained earnings. For the purposes of this exercise, treat the interest payments as being determined by the end-of-year liabilities and earnings in the current year apply towards end-of-year liabilities.Explanation / Answer
Pro - forma Financial Statement
Income statement
revenue
30
less cost of goods sold
18
gross profit
12
less fixed cost
4.5
operating profit
7.5
less interest
0.8
profit before tax
6.7
less tax -25%
1.68
net income
5.03
Balance sheet
Assets
Assets =20-5.03
14.97
factory
10
total of assets
24.97
Liabilities and shareholders equity
loan account
4.97
equity
20
total of liabilities and shareholders equity
24.97
Pro - forma Financial Statement
Income statement
revenue
30
less cost of goods sold
18
gross profit
12
less fixed cost
4.5
operating profit
7.5
less interest
0.8
profit before tax
6.7
less tax -25%
1.68
net income
5.03
Balance sheet
Assets
Assets =20-5.03
14.97
factory
10
total of assets
24.97
Liabilities and shareholders equity
loan account
4.97
equity
20
total of liabilities and shareholders equity
24.97
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