Identifying the External borrowings requirement or excess cash generated by preparing the pro-forma balance sheet.
It is now the end of year 2009. You have been asked to help the Nero Violin Company (whose motto is "There'll be a hot time in the old town tonight!") plan for the year 2010. Nero's end-of-year balance sheet for 2009 is given below:
|
Balance Sheet - December 31, 2009
|
|
Cash
|
$100
|
Accounts payable
|
$500
|
|
Marketable securities
|
200
|
Bank notes payable
|
300
|
|
Accounts receivable
|
400
|
Bonds payable
|
400
|
|
Inventories
|
500
|
Common stock
|
1,000
|
|
Plant, net
|
1,600
|
Retained earnings
|
600
|
|
Total Assets
|
$2,800
|
Total L+E
|
$2,800
|
Sales in 2009 were $4,000; 2010 sales are forecast to be $4,400. The firm has a net profit margin of 9% and pays one-third of its earnings after taxes as dividends. The marketable securities account is used to accumulate funds for acquisitions. Since the company is operating at full capacity, it anticipates that plant will grow proportionally with increased sales. All of the bank notes payable and $50 of the bonds payable must be repaid in 2010.
Required
Forecast the firm's December 31, 2010 pro-forma balance sheet. Identify the external financing need (EFN) or excess cash generated.