A business owner decides to take out a loan. The loan will have an annual interest rate of 7.5%. The loan of $85,000 will be issued January 1, 2009, and is designated to repay all of the person's credit card debt. Before the loan is finalized the person must produce pro forma financial statements for 2009 showing the year-end loan amount. The difference between the year-end loan amount and $85,000 is the amount of the loan the person will repay during 2009.
Use the actual financial statements for 2008 and the assumptions below to construct pro forma financial statements for 2009 for their company.
Assumptions (all numbers in thousands)
? Sales will increase 10% in 2009
? COGS will remain 72% of Sales in 2009.
? GA&S will increase by $10,000 in 2009.
? In 2009, depreciation expense will be $4,000, no assets will be sold and $4,000 of new assets will be purchased.
? The new loan is for $85,000 at an interest rate of 7.5%. Assume that the loan balance is $85,000 throughout the year, and the loan is reduced only at the end of the year (December 2009), so interest expense in 2009 is based on the $85,000 loan balance.
? The tax rate is 30%.
? Cash, A/Receivable, Inventory and A/Payable will be the same % of sales in 2009 as they were in 2008. The minimum cash balance is 2% of Sales.
? All earnings are retained to finance growth (No dividends are paid).
* Assume Cash is kept at its minimum level as long as there is a loan outstanding.
A. Develop pro forma financial statements for 2009.
2008 Actual and 2009 Pro Forma
Income Statement 2008 2009 Pro Forma
Sales 500,000.00 ???
COGS 360,000.00 ???
Gross Margin 140,000.00 ???
GA&S Expense 100,000.00 ???
Interest Expense 15,050.00 ???
Depreciation Expense 4,000.00 ???
Taxable Income 20,950.00 ???
Taxes 6,285.00 ???
Net Income 14,665.00 ???
Assets 2008 2009 Pro Forma
Cash 10,000.00 ???
A/Receivables 20,000.00 ???
Inventory 125,000.00 ???
Total Current Assets 155,000.00 ???
Net Fixed Assets 55,000.00 ???
Total Assets 210,000.00 ???
Liabilities & Equity 2008 2009 Pro Forma
A/Payable 36,000.00 ???
Credit Card Debt (17.5%) 85,000.00 -
New Loan (7.5%) - ???
Total Current Liabilities 122,000.00 ???
Common Stock 30,000.00 ???
Retained Earnings 58,000.00 ???
Total Liabilities & Equity 210,000.00 ???
B. What will the year-end loan balance be? How much of the original $85,000 loan was the person able to repay?
C. Create a Sources and Uses statement to show how the person was able to reduce the balance of the new loan; that is, show where the money came from to repay part of the loan?
See the attached Excel file.
There is a difference in 2008 Balance Sheet of 2008 ...
The solution assists with constructing pro forma financial statements for the company.