Lewis Company
Pro Forma Income Statement, December 31, 2007(Thousands of Dollars)
2007
Sales $8,000
Operating costs 7,450
EBIT $ 550
Interest 150
EBT $ 400
Taxes (40%) 160
Net income $ 240
Less: Dividends: $1.04 × 150 = $ 156
Addition to R.E.= $ 84
Lewis Company,Pro Forma Balance Sheet,December 31, 2007,(Thousands of Dollars)
2007
Cash $ 80
Receivables 240
Inventories 720
Total current assets $1,040
Fixed assets 3,200
Total assets $4,240
Accounts
Payable 160
Accrued liab. 40
Notes payable 252
Total current liabilities $ 452
Long-term debt 1,244
Total debt $1,696
Common stock 1,605
Retained
Earnings 939
Total liabilities and equity $4,240
On a separate piece of paper (preferably using Excel), complete the following exercises.
1. It expects sales to increase by 20% during 2008 and expects dividends per share to increase to $1.10, based upon 150 shares outstanding. Fixed Assets are closely tied to sales levels. Use the Percent of Sales method to project the 2008 financial statements for the firm. How much AFN doe the firm require?
2. The firm must maintain a current ratio of 2.3 and a total debt to capital ratio of 40%. How much financing will be obtained using notes payable, long-term debt and common stock?