finance homework

Chapter 16 Homework

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?