Baldwin Products Company anticipates reaching a sales level of $5.1 million in one year. The company expects earnings after taxes during the next year to equal $430,000o. During the past several years, the company has been paying $50,000 in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for Baldwin during Year 1 follow. Baldwin Products Company Balance Sheet as of December 31, Year 1 Cash $ 240,000 Accounts payable $ 620,000 Accounts Receivable 440,000 Notes payable 32,000 Inventories 298,000 Long-term Debt 200,000 Fixed assets, net 1,152,000 Stockholders' equity 1,278,000 Total assets $2,130,000 Total liabilities and equity $2,130,000 Income Statement for the Year Ending December 31, Year 1 Sales $3,400,000 Expenses, including interest and taxes 3,200,000 Earnings after taxes 200,000 a. Using the percentage of sales method, calculate the additional financing Baldwin Products will need over the next year at the $5.10 million sales level. Show the pro forma balance sheet for the company as of December 31, Year 2, assuming that a sales level of $5.10 million is reached. Assume that the additional financing needed is obtained in the form of additional notes payable. Round your answers to the nearest dollar. Additional Financing Needed:
Baldwin Products Company anticipates reaching a sales level of $5.1 million in one year. The company expects earnings after taxes during the next year to equal $430,000o. During the past several years, the company has been paying $50,000 in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for Baldwin during Year 1 follow. Baldwin Products Company Balance Sheet as of December 31, Year 1 Cash $ 240,000 Accounts payable $ 620,000 Accounts Receivable 440,000 Notes payable 32,000 Inventories 298,000 Long-term Debt 200,000 Fixed assets, net 1,152,000 Stockholders' equity 1,278,000 Total assets $2,130,000 Total liabilities and equity $2,130,000 Income Statement for the Year Ending December 31, Year 1 Sales $3,400,000 Expenses, including interest and taxes 3,200,000 Earnings after taxes 200,000 a. Using the percentage of sales method, calculate the additional financing Baldwin Products will need over the next year at the $5.10 million sales level. Show the pro forma balance sheet for the company as of December 31, Year 2, assuming that a sales level of $5.10 million is reached. Assume that the additional financing needed is obtained in the form of additional notes payable. Round your answers to the nearest dollar. Additional Financing Needed:
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 7P
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Transcribed Image Text:Pro Forma Balance Sheet as of Dec. 31, Year 2
Assets
Liabilities
Cash
$ Accounts Payable
2$
Accounts Receivable
Notes Payable
Inventories
Long-term Debt
Fixed Assets, net
Stockholders' equity
Total Assets
$
Total Liabilities and
Stockholders' Equity
2$
b. Suppose that the Baldwin Products' management feels that the average collection period on its additional sales-that is, sales over $3.40 million-will be 50
days, instead of the current level. By what amount will this increase in the average collection period increase the financing needed by the company over the
next year? Round your answer to the nearest dollar.
c. If the Baldwin Products' banker requires the company to maintain a current ratio equal to 1.5 or greater, what is the maximum amount of additional
financing that can be in the form of bank borrowings (notes payable)? Round your answer to the nearest dollar.
$
Transcribed Image Text:Baldwin Products Company anticipates reaching a sales level of $5.1 million in one year. The company expects earnings after taxes during the next year to
equal $430,000. During the past several years, the company has been paying $50,000 in dividends to its stockholders. The company expects to continue this
policy for at least the next year. The actual balance sheet and income statement for Baldwin during Year 1 follow.
Baldwin Products Company Balance Sheet as of December 31, Year 1
Cash
$ 240,000
Accounts payable
$ 620,000
Accounts Receivable
440,000
Notes payable
32,000
Inventories
298,000
Long-term Debt
200,000
Fixed assets, net
1,152,000
Stockholders' equity
1,278,000
Total assets
$2,130,000
Total liabilities and equity
$2,130,000
Income Statement for the Year Ending December 31, Year 1
Sales
$3,400,000
Expenses, including interest and taxes
3,200,000
Earnings after taxes
200,000
a. Using the percentage of sales method, calculate the additional financing Baldwin Products will need over the next year at the $5.10 million sales level. Show
the pro forma balance sheet for the company as of December 31, Year 2, assuming that a sales level of $5.10 million is reached. Assume that the additional
financing needed is obtained in the form of additional notes payable. Round your answers to the nearest dollar.
Additional Financing Needed:
$
Pro Forma Balance Sheet as of Dec. 31, Year 2
Assets
Liabilities
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