CHAPTER 3 Cash Flow and Financial Planning 137LG5LG5
c. Could Leonard Industries adjust its planned 2004 dividend to avoid the situ-
ation described in part b?Explain how.3–17 Pro forma balance sheet Peabody & Peabody has 2003 sales of $10 million. It
wishes to analyze expected performance and financing needs for 2005—2 years
ahead. Given the following information, respond to parts aand b.
(1) The percents of sales for items that vary directly with sales are as
follows:
Accounts receivable, 12%
Inventory, 18%
Accounts payable, 14%
Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain
unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2004, and equipment
costing $850,000 will be purchased in 2005. Total depreciation in 2004
is forecast as $290,000, and in 2005 $390,000 of depreciation will be
taken.
(5) Accruals are expected to rise to $500,000 by the end of 2005.
(6) No sale or retirement of long-term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2004 and $12 million in 2005.
(10) The December 31, 2003, balance sheet follows.a. Prepare a pro forma balance sheet dated December 31, 2005.
b. Discuss the financing changes suggested by the statement prepared in
part a.3–18 Integrative—Pro forma statements Red Queen Restaurants wishes to prepare
financial plans. Use the financial statements and the other information provided
in what follows to prepare the financial plans.Peabody & Peabody
Balance Sheet
December 31, 2003
($000)
Assets Liabilities and Stockholders’ EquityCash $ 400 Accounts payable $1,400
Marketable securities 200 Accruals 400Accounts receivable 1,200 Other current liabilities (^8) (^0)
Inventories (^1) , (^8) (^0) (^0) Total current liabilities $1,880
Total current assets $3,600 Long-term debt $2,000
Net fixed assets $ (^4) , (^0) (^0) (^0) Common equity $ (^3) , (^7) (^2) (^0)
Total assets $
7
,
6
0
0
Total liabilities and
stockholders’ equity $
7
,
6
0
0