Question: BLV anticipates reaching a sales level of $6 million in one year. The firm expects a net income during the next year to equal $400,000. Over the past many years, the firm has been paying 50k in dividends to its stockholders. The firm expects to continue this policy for at least the next year. The actual balance sheet and income statement for BLV are as follows:
BLV Balance sheet as of December 31, 2005
Cash 200,000 Accounts Payable 600,000
Accounts receivable 400,000 Notes Payable 500,000
Inventories 1,200,000
Current liabilities 1,100,000
Current assets 1,800,000 Long-term debt 200,000
Net fixed assets 500,000 Stockholder’s equity 1,000,000
Total assets 2,300,000 Total Liabilities and equity 2,300,000
Using the percentage (%) of sales method, compute the additional financing needed over the next year at the $6 million sales level. Show the pro forma balance sheet for the firm as of Dec 31, 2006; suppose a sales level of $6 million is reached. Assume that all assets vary proportionately with sales. Accts payable is the only liability that varies proportionately with sales. Suppose additional financing needed is obtained in the form of notes payable.