Peabody & Peabody has 2012 sales of $10 million. It wishes to analyze expected performance and financing needs for 2014-2 years ahead.
Given the following information, respond to parts a and 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 2013, and equipment costing $850,000 will be purchased in 2014. Total depreciation in 2013 is forecast as $290,000, and in 2014 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2014.
(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 2013 and $12 million in 2014.
(10) The December 31, 2012, balance sheet follows.
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a. Prepare a pro forma balance sheet dated December 31, 2014.
b. Discuss the financing changes suggested by the statement prepared in parta.