WMBA 6060 – PRO FORMA INCOME STATEMENT

Subject: Business    / Finance
Question

For this Assignment, complete Problems 17-7 (one year pro forma statement) and 17-8 (total liabilities estimation and forecast of long-term debt financing need) in your course text. In addition, provide two or more suggestions on what Ambrose Inc. could do to reduce the forecasted debt financing (the managerial part of financing). Be sure to provide rationales as to why your suggestions will be effective in reducing the forecasted debt financing need.

1, Sales $3,000.00

2. Operating costs excluding depreciation $2,450.00
3. EBITDA $550.00
4. Depreciation $250.00
5. EBIT $300.00
6. Interest $125.00
7. EBT $175.00
8. Taxes (40%) $70.00

9. Net income $105

17-7 PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following
income statement (in millions of dollars): (picture above)
Looking ahead to the following year, the company’s CFO has assembled this information:
Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.
Depreciation is expected to increase at the same rate as sales.
Interest costs are expected to remain unchanged.
The tax rate is expected to remain at 40%.
On the basis of that information, what will be the forecast for Roberts’ year-end net income?

QUESTION 2
17-8 LONG-TERM FINANCING NEEDED.

At year-end 2015, total assets for Ambrose Inc. were $1.2
million and accounts payable were $375,000. Sales, which in 2015 were $2.5 million, are expected
to increase by 25% in 2016. Total assets and accounts payable are proportional to sales, and that
relationship will be maintained; that is, they will grow at the same rate as sales. Ambrose typically
uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in
2015, and retained earnings were $295,000. Ambrose plans to sell new common stock in the
amount of $75,000. The firm’s profit margin on sales is 6%; 60% of earnings will be retained.

a. What were Ambrose’s total liabilities in 2015?

b. How much new long-term debt financing will be needed in 2016?
(Hint: AFN ? New stock = New long-term debt.) (Brigham 596-597)
Brigham, Eugene F. Fundamentals of Financial Management, 14th Edition. Cengage Learning,
20150101

c. Submit an Excel and Word file showing your work. (Word file should be at least 2 pages providing rationales why your suggestions would be effective reducing the forecasted debt financing need).