With the financial objectives and assumptions presented below, prepare the following
for the company:
a). Projected statement of income for 2014
b). Projected statement of changes in equity for 2014
c). Projected statement of financial position for 2014
d). Projected statement of cash flows for 2014
e). Financial ratios for 2014, comparing them with the 2013 financial
results
Also, calculate the following:
f). The company’s 2014 sustainable growth rate
g). The company’s 2014 Z-score
Financial objectives and assumptions:
1). Related to the statement of income:
• Revenue will increase by 10.0%.
• Cost of sales as a percentage of revenue will decline to 51.5%.
• Distribution costs as a percentage of revenue will improve slightly
to 10.5%.
• General and administrative expenses will drop to 5.7% of revenue.
• Research and development costs as a percentage of revenue will
increase to 2.0%.
• Depreciation/amortization will be $120,000.
• Other income will be $6,000.
• Finance costs will be $35,000.
• Income tax rate (as a percent of profit before taxes) will be maintained
at the 2013 level.
2). Related to the statement of changes in equity:
• $50,000 in dividends will be paid to shareholders.
3). Related to the statement of financial position:
a). Non-current asset accounts
• Investment in new capital assets will be $660,000.
• Other assets will be increased by $100,000.
b). Current asset accounts
• Inventories will improve to 4.9 times.
• Trade receivables will improve to 44.9 days.
• Cash and cash equivalents will be 2.0% of revenue.
c). Equity
• Shareholders will invest an additional $200,000 in the business.
d). Non-current liabilities
• Long-term borrowings will increase by $39,700.
e). Current liabilities
• Trade and other payables will increase to 11.31% of cost of sales.
• Notes payable will increase to $268,685.
