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Pro-Forma Statement of Cash Flows

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The accountants at Karl's Fish Hatchery are currently preparing the pro-forma statement of
cash flows for May. In getting ready to prepare the statement, they have the following information
available:
Dividends to be paid in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500
Bonds to be issued in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Equipment to be purchased in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Repayment of short-term loans in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Depreciation expense during May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Expected May net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Expected changes in current assets and
liabilities during May:
Accounts receivable decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Accounts payable decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,730
Increase in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,580
Increase in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550
Prepare Karl's pro-forma statement of cash flows (using the indirect method).

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The solution explains how to prepare a pro-forma statement of cash flows using the indirect method

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Pro Forma Financial Statements and Free Cash Flow Computation

FORECASTING PRO FORMA FINANCIAL STATEMENTS

Prepare a pro forma income statement and balance sheet for Webb Enterprises, found in Problem 6-7, where revenues are expected to grow by 20% in 2016. Make the following assumptions in making your forecast of the firm's balance sheet for 2016:

■ The income statement expenses are a constant percent of revenues except for interest, which remains equal in dollar amount to the 2015 level, and taxes, which equal 40% of earnings before taxes.

■ The cash and marketable securities balance remains equal to $500, and the remaining current asset accounts and fixed assets increase in proportion to revenues for 2015.

■ Net property, plant, and equipment increase in proportion to the increase in revenues and depreciation expenses for 2016 is $2000.

■ Accounts payable increases in proportion to firm revenues.

■ Owners' equity increases by the amount of firm net income for 2016 (no cash dividends are paid).

■ Long-term debt remains unchanged, and short-term debt changes in an amount that balances the balance sheet.

6-13 FORECASTING FIRM FCF Using your pro forma financial statements from Problem 6-12, estimate the firm's FCF for 2016.

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