84 Part Two Planning Future Financial Performance TABLE 3.3 Pro Forma Financial Statements for R&E Supplies, Inc., December 31, 2018 ($ thousands) Income Statement 2018 Comments 25% increase $25,766 22,159 Net sales 86% of sales Cost of goods sold 3,607 Gross profit Expenses: General, selling, and administrative expenses Net interest expense 3,092 12% of sales 90 Initially constant 425 Earnings before tax 45% tax rate 191 Tax 24 234 Earnings after tax Balance Sheet Assets Current assets: 18 days sales 51-day collection period 9 times turnover Rough estimate $ 1,271 Cash and securities Accounts receivable 3,600 Inventories 2,462 20 Prepaid expenses Total current assets 7,353 280 See text discussion Net fixed assets Total assets $ 7,633 Liabilities and Owners' Equity Current liabilities: Bank loan $. Accounts payable Current portion of long-term debt Accrued wages 59-day payables period See text discussion 3,582 100 22 Rough estimate Total current liabilities 3,704 Long-term debt Common stock 660 150 Retained earnings 1,697 See text discussion Total liabilities and owners' equity $ 6,211 External funding required $ 1,422 Because the amounts are small and the forecast does not require a high degree of precision, rough estimates will suffice. When asked about new fixed assets, the president indicated that a $43,000 capital budget had already been approved for 2018. Further, depreciation

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 12SP

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Question

Table 3.3 shows the December 31, 2018 pro forma balance sheet and income statements for R&E Supplies, Inc. The pro-forma balance sheet shows that R&E Supplies will need external funding from the bank of $1.4 million. However, they show almost $1.3 million in cash and short-term securities. Why are they talking to the bank for such a large amount when they have most of this sum in their cash account?

84 Part Two Planning Future Financial Performance
TABLE 3.3 Pro Forma Financial Statements for R&E Supplies, Inc., December 31, 2018 ($ thousands)
Income Statement
2018
Comments
25% increase
$25,766
22,159
Net sales
86% of sales
Cost of goods sold
3,607
Gross profit
Expenses:
General, selling, and administrative expenses
Net interest expense
3,092
12% of sales
90
Initially constant
425
Earnings before tax
45% tax rate
191
Tax
24
234
Earnings after tax
Balance Sheet
Assets
Current assets:
18 days sales
51-day collection period
9 times turnover
Rough estimate
$ 1,271
Cash and securities
Accounts receivable
3,600
Inventories
2,462
20
Prepaid expenses
Total current assets
7,353
280
See text discussion
Net fixed assets
Total assets
$ 7,633
Liabilities and Owners' Equity
Current liabilities:
Bank loan
$.
Accounts payable
Current portion of long-term debt
Accrued wages
59-day payables period
See text discussion
3,582
100
22
Rough estimate
Total current liabilities
3,704
Long-term debt
Common stock
660
150
Retained earnings
1,697
See text discussion
Total liabilities and owners' equity
$ 6,211
External funding required
$ 1,422
Because the amounts are small and the forecast does not require a high degree
of precision, rough estimates will suffice.
When asked about new fixed assets, the president indicated that a $43,000
capital budget had already been approved for 2018. Further, depreciation

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