Chapter 12, Problem 8P

Stevens Textile Corporation’s 2019 financial statements are shown here. Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by 15% in the next year but will finance the growth with a line of credit, not notes payable or long-term bonds. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2020. The interest rate on all debt is 10%, and cash earns no interest income. The line of credit 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 2019, that it cannot sell off any of its fixed assets, and that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales.

1. a. What is the projected value for earnings before interest and taxes?
2. b. What is the projected value for pre-tax earnings?
3. c. What is the projected net income?
4. d. What is the projected addition to retained earnings?
5. e. What is the projected value of total current assets?
6. f. What is the projected value of total assets?
7. g. What is the projected sum of accounts payable, accruals, and notes payable?
8. h. What is the forecasted line of credit?

Balance Sheet as of December 31, 2019 (Thousands of Dollars)

Income Statement for December 31, 2019 (Thousands of Dollars)