Assignment 4.4 Exercises
Problem 1: Creating Proforma Financial Statements 5 Points
A pro forma Income Statement for Monroe Products Co. is displayed below:
Monroe Products Company .
Income Statements, 2019 and Pro Forma 2020
Years Ended December 31st
2019 Actual 2020 Forecast
Net Sales $1,000,000 $1,250,000
Cost of Goods Sold 800,000 1,000,000
Gross Profit $200,000 $250,000
Operating Expenses 100,000 125,000
Depreciation Expense 50,000 62,500
Operating Income (EBIT) $50,000 $62,500
Interest Expense 10,000 12,500
Taxable Income $40,000 $50,000
Income Tax Expense 15,000 18,750
Net Income $25,000 $31,250
Use the information given to construct the Pro Forma Balance Sheet for 2020.
a) Sales growth is projected to be 25% in 2020, and Current Assets is expected to grow with Sales. What should Current Assets be in 2020?
b) Monroe Products plans to purchase $100,000 of fixed assets in 2020, but will not dispose of any existing fixed assets. What should be its forecast for ending Net Fixed Assets in 2020?
c) If Monroe Products pays out 40% of its Net Income in 2020 (payout ratio) and will neither sell nor repurchase equity during the year, what should its forecast for owner’s equity be at the end of 2020?
d) Given all the above information, What is Monroe Products’ projected external funding required for 2020?
Use the Template Provided Below to Create Your Solution – Be sure to show or explain your work to get full credit!
Input / Output area:
Monroe Products Company
Balance Sheets, 2019 and Pro Forma 2020
December 31st
2019 2020 Forecast 2019 Common Size
Current Assets $500,000 Current Liabilities $200,000 $250,000
Long-Term Debt $100,000 $125,000
Net Fixed Assets $400,000 Owner’s Equity $600,000
Total Assets $900,000 $- “Total Liabilities and
Owners’ Equity” $900,000 $375,000
External Financing Needed: $(375,000)
