Pro forma balance sheet Peabody & Peabody has 2019 sales of $10 million. It wishes to analyze expected performance and financing needs for 2021, which is 2 years ahead. Given the following...


Pro forma balance sheet Peabody & Peabody has 2019 sales of $10 million. It wishes to analyze expected performance and financing needs for 2021, which is 2 years ahead. Given the following information, respond to parts a and b.


(1) The percent 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 2020, and equipment costing $850,000 will be purchased in 2021. Total depreciation in 2020 is forecast as $290,000, and in 2021 $390,000 of depreciation will be taken.


(5) Accruals are expected to rise to $500,000 by the end of 2021.


(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 2020 and $12 million in 2021.


(10) The December 31, 2019, balance sheet follows




Peabody & Peabody Balance Sheet December 31, 2019 ($000)



Assets


Cash 400


Marketable securities 200


Accounts receivable 1200


Inventories 1800


Total current assets 3600


Net fixed assets 4000


Total assets 7600



Liabilities and Stockholders equity


Accounts payable 1400


Accruals 400


Other current liabilities 80


Total current liabilities 1880


Long-term debt 2000


Total liabilities 3880


Common equity 3720


Total liabilities and stockholders’ equity    $7,600



a. Prepare a pro forma balance sheet dated December 31, 2021.


b. Discuss the financing changes suggested by the statement prepared in part a.

Jun 08, 2022
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