For this Assignment, complete Problems 17-7 (one year pro forma statement) and 17-8 (total liabilities estimation and forecast of long-term debt financing need)

Intermediate Problems 7-12

17-7 PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

Sales	$3,000
Operating costs excluding depreciation	2,450
EBITDA	$ 550
Depreciation	250
EBIT	$ 300
Interest	125
EBT	$ 175
Taxes (40%)	70
Net income	$ 105

Looking ahead to the following year, the company’s CFO has assembled this information:

• Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.

• Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.

• Depreciation is expected to increase at the same rate as sales.

• Interest costs are expected to remain unchanged.

• The tax rate is expected to remain at 40%.

On the basis of that information, what will be the forecast for Roberts’ year-end net income?

17-8 LONG-TERM FINANCING NEEDED At year-end 2018, total assets for Arrington Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2018, and retained earnings were $475,000. Arrington plans to sell new common stock in the amount of $130,000. The firm’s profit margin on sales is 5%; 35% of earnings will be retained.

a. What were Arrington’s total liabilities in 2018?

b. How much new long-term debt financing will be needed in 2019? (Hint: AFN − New stock = New long-term debt.)