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Problem 18-16 Build financial model -Dynastatics Corporation

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Problem 18-16
Build financial models
The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (that is assets net of depreciation) by $200 per year for the next 5 years and forecasts that the ratio of revenues to total assets will remain at 1.5. Annual depreciation is 10 percent of net fixed assets at the start of the year. Fixed costs are expected to remain at $56 and variable costs at 80 percent of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 25 percent of total capital.

a. Produce a set of financial statements for 2001. Assume that net working capital will equal 50% of fixed assets.
b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed proforma balance sheet for 2001. What is the projected debt ratio for 2001?

INCOME STATEMENT, 2000
(figures in thousands of dollars)
Revenue $1,800
Fixed costs 56
Variable costs (80% of revenue) 1,440
Depreciation 80
Interest (8% of beginning-of-year debt) 24
Taxable income 200
Taxes (at 40%) 80
Net Income $120
Dividends $80
Retained earnings $40

BALANCE SHEET, YEAR-END
(figures in thousands of dollars)
1999 2000
Assets
Net working capital $400 $400
Fixed assets 800 800
Total assets $1,200 $1,200
Liabilities and shareholders' equity
Debt $300 $300
Equity 900 900
Total liabilities and shareholders' equity $1,200 $1,200

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Solution Preview

Find the help in attached Excel sheet. The formating here may not be correct.
Solution

Problem 18-16
Instructions

Using the assumptions below, enter formulas to calculate the financial items of the pro forma statements.
In part a, enter explanations in the comment column to document how you calculated the item.

a. Produce a set of financial statements for 2001. Assume that net working capital will equal 50% of fixed
assets.

Assumptions
Net working capital to fixed assets 50%
Net fixed asset investment increase $200 per year
Revenue to Total Assets 1.5
Depreciation 10% of net fixed assets at ...

Solution Summary

This post answers how to produce a set of financial statements forand proforma balance sheet. Also helps to answer the projected debt ratio.

$2.19