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Return on equity and pro forma statement

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Recalculate ratios 5-11 from using the numbers from the Pro Forma statement below.

5) Times interest earned
6) Debt-to-equity ratio
7) Net profit margin
8) Return on equity
9) Total asset turnover
10) Return on assets
11) Price-earnings ratio

Boeing Pro Forma Income Statement

Revenue 2007 % of Sales 2008
Gross Sales 66387 0.15 99580
cost of goods sold 53402 0.8 53402
Net Sales 12985 0.19 112565

Taxable Income 6118 0.09
Taxes 2060 0.03
Net Income 4058 0.06
Dividends 1129 23
Addition to Retained Earnings 21375

Preparing a pro forma income statement for the coming year with a 15% sales increase will help the management to determine how much funds will need to be raised to make this possible.
If it is determined from this calculation that the profit margin is going to be low than other pricing strategy needs to be considered.

This projection can enable the business to prepare for ways to obtain additional financing to reach a positive income goal. This is not the most accurate but the quickest computation to give them an advance look into the future. Http://www.zenwealth.com/N

PRO FORMA BALANCE SHEET
Assets
Current Assets
1. Cash $1,062,599

2. Marketable securities $5,100,000
3. Accounts Receivable $9,924,850

4. Inventory $10,688,300

Total Current Assets $26,476,600
5. Plant and Equipment $9,161,400

Total Assets $35,638,000
Liabilities and Stockholders' Equity
6. Accounts Payable
$35,118,700

7. Notes Payable $0
8. Long-term Debt $7,455,000
9. Common Stock $5,061,000
10. Retained Earnings $4,543,700
Total Liabilities and Stockholders' Equity $52,178,400

A pro forma balance sheet is created part from the pro forma income statement and using the predicted 15% sales increase. Cash will increase by one percent to $1,062,599 and accounts receivable is projected at a 13% increase totaling $9,924,850. A 14% increase will be seen in the inventory's category totaling $10,688,300 bringing the total current assets to $26,476,600 (a 28% increase). Once you add in the increase in plant and equipment, $9,161,400, the total assets will be $35,638,000. Total assets are projected to increase by 41% in the 2008 fiscal year. While total assets have a significant increase, the total liabilities had a slight increase to $52,178,400. Accounts payable is projected to go up by 46% to $35,118,700 and accounts receivable should be zero since all amounts would be collected by the end of the year. Long term debt and common stock transfer over from the previous year unchanged. Retained earnings are taken from the pro forma income statement in the amount of $4,543,700. Liabilities increasing mean the company will need to find additional financing, because the amount is more than last year.

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recalculate ratios 5-11 from using the numbers from the Pro Forma statement below.

5) Times interest earned
6) Debt-to-equity ratio
7) Net profit margin
8) Return on equity
9) Total asset turnover
10) Return on assets
11) Price-earnings ratio

Boeing Pro Forma Income Statement

Revenue 2007 % of Sales 2008
Gross Sales 66387 0.15 99580
cost of goods sold 53402 0.8 53402
Net Sales 12985 0.19 112565

Taxable Income 6118 0.09
Taxes 2060 0.03
Net Income 4058 0.06
Dividends 1129 23
Addition to Retained Earnings 21375

Preparing a pro forma income statement for the coming year with a 15% sales increase will help the management to determine how much funds will need to be raised to make this possible.
If it is determined ...

Solution Summary

This provides the steps to calculate the Return on equity

$2.19
See Also This Related BrainMass Solution

Prepare a Pro Forma Income Statement

1. Prepare a Pro Forma Income Statement
Net Sales =2,938 COGS=1,598 SG&A=475 Depreciation=45 Interest Exp=32 Tax=15%

Net Sales
Cost Of Goods Sold
Gross Profit
Selling & Admin Exp
Depreciation
Interest Exp
Income Before Taxes
Income Taxes
Net Profit

2. In a fixed cash budget, cash flow estimates are made for a single set of sales estimates,
a. Whereas a variable budget involves the preparation of several cash flow estimates, with each estimate corresponding to a different set of sales estimates.
b. Whereas a variable budget involves the preparation of one cash flow estimate, with each estimate corresponding to a different set of sales estimates.
c. Whereas a variable budget involves the preparation of several cash flow estimates, with each estimate corresponding to only one set of sales estimates.

3. A cash budget can also be used to determine the amount of excess cash on hand that will not be needed to finance future operations.
a.This excess cash cannot be invested in securities or other profitable alternatives.
b.This excess cash can then be invested in securities or other profitable alternatives.
c.There is never an excess cash to be invested in securities or other profitable alternatives.

4.(Time disparity ranking problem) The State Spartan Corporation is considering two mutually exclusive projects. The cash flows associated with those projects are as follows:
YEAR PROJECT A PROJECT B
0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 $100,000

The required rate of return on these projects is 10 percent.
a. What is each project's payback period?
b. What is each project's net present value?

5. To buy a new house you take out a 25 year mortgage for $300,000. What will your monthly interest rate payments be if the interest rate on your mortgage is 8 percent?
rate (i) =
number of periods (n)=
present value (PV) = $300,000
future value (FV) = $0
type (0 = at end of period) = 0
monthly mortgage payment =

6. A cash budget is usually thought of as a means of planning for future financing needs. Why
would a cash budget also be important for a firm that had excess cash on hand?

7. Weighted Average Cost of Capital NPd=
a. the market price of the debt, plus flotation costs
b. the market price of the debt, less flotation costs
c. the market price of the debt, equal to flotation costs

8. kd =
a. the market price of the debt, plus flotation costs
b. After-tax cost of the debt (After-tax required rate of return on debt)
c. before-tax cost of the debt (before-tax required rate of return on debt)

9. kps =
a. the cost of internally generated common funds
b. After-tax cost of the debt (After-tax required rate of return on debt)
c. before-tax cost of the debt (before-tax required rate of return on debt)
d. the cost of preferred stock.

10. Cost of preferred stock) Your firm is planning to issue preferred stock. The stock sells for $115; however, if new stock is issued, the company would receive only $98. The par value of the stock is $100 and the dividend rate is 14 percent. What is the cost of capital for the stock to your firm?

11. (Cost of internal equity) Pathos Co.'s common stock is currently selling for $21.50. Dividends paid last year were $.70. Flotation costs on issuing stock will be 10 percent of market price. The dividends and earnings per share are projected to have an annual growth rate of
15 percent. What is the cost of internal common equity for Pathos?

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