Stevens Textiles’s 2010 financial statements are shown below: Suppose 2011 sales are projected to increase by 15% over 2010 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2011. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings.Assume that the company was operating at full capacity in 2010, that it can not sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. What is the resulting total forecasted amount of notes payable? In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2011 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don’t do any calculations, but how would this change the answers to parts 1 and 2?
Stevens Textiles’s 2010 financial statements are shown below: Suppose 2011 sales are projected to increase by 15% over 2010 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2011. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings.Assume that the company was operating at full capacity in 2010, that it can not sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. What is the resulting total forecasted amount of notes payable? In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2011 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don’t do any calculations, but how would this change the answers to parts 1 and 2?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Stevens Textiles’s 2010 financial statements are shown below:
- Suppose 2011 sales are projected to increase by 15% over 2010 sales. Use the
forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2011. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use theforecasted income statement to determine the addition to retained earnings.Assume that the company was operating at full capacity in 2010, that it can not sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. - What is the resulting total forecasted amount of notes payable?
- In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2011 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don’t do any calculations, but how would this change the answers to parts 1 and 2?
Transcribed Image Text:Balance Sheet as of December 31, 2010 (Thousands of Dollars)
$ 1,080
6,480
9,000
$16,560
12,600
Accounts payable
$ 4,320
2,880
2,100
$ 9,300
3,500
3,500
12,860
$29,160
Cash
Receivables
Accruals
Notes payable
Total current liabilities
Inventories
Total current assets
Net fixed assets
Mortgage bonds
Common stock
Retained earnings
Total liabilities and equity
Total assets
$29,160
Income Statement for December 31, 2010 (Thousands of Dollars)
Sales
Operating costs
Earnings before interest and taxes
$36,000
32,440
$ 3,560
Interest
460
$ 3,100
Earnings before taxes
Taxes (40%)
1,240
Net income
$ 1,860
$ 837
Dividends (45%)
Addition to retained earnings
$
$ 1,023
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