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External funding needed

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Please see attachment.

Equivalency of the External Funds Needed (EFN) equation and pro-formas:

TACA International
Balance sheet and Income Statement Information:
Balance Sheet
December 31, 2002
Assets:
Current Assets $500 Short Term Debt $300
Fixed Assets $550 Long Term Debt $200
Total Assets $1050 Equity $550
Total Liab. & Equity $1050

Income Statement
December 31, 2002
Sales Revenue $1200
NIAT $ 100
Dividends $ 40

Assume sales are projected to rise by 20% for the year 2003. Net profit margin on sales and dividend payout ratios will remain constant. The only assets that are spontaneous (rise proportionally with sales) are current assets, and the only liabilities that are spontaneous (rise proportionally with sales) are current liabilities.

a) Use the EFN equation to generate an estimate of the amount of additional, external funding the firm will require in 2003
b) Develop pro-forma income statements and balance sheets for the year 2003. Your pro-formas should show only the same accounts shown above (they obviously do not need to be detailed). Clearly show the plug number which makes your pro-forma balance sheet balance.
c) Compare the plug number in part (b) with the EFN estimate in part (a).

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Solution Summary

Word document contains EFN equation,pro-forma income statements and balance sheets Tthe plug number which makes pro-forma balance sheet balance is clearly shown.

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Solution:
A) Projected sales =Sales for the year 2002 120% =$1200*120% =$1440
Net profit margin ratio = NIAT /Sales = $100/$1200 = 8.33%
Dividend payout ratio = Dividend / NIAT = $40/$100 =40%
Expected profit = Projected sales net profit margin = $1440 *8.33% = $120
Expected dividend =Expected Profit *Dividend payout ratio = $120* 40% =$48
Addition to retained earnings = ...

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