Umali, Jenny Shane P.

BSA 3

Financial Management
PROBLEM 1: PRO FORMA STATEMENTS

PRO FORMA INCOME STATEMENT PRO FORMA BALANCE SHEET

Sales 26, 451 Assets 18, 170 Debt 5, 980

Costs 19, 206 Equity 12, 190
Net Income 7, 246 Total 18, 170 Total 18, 170

Additional Financing Needed:

Net Income 7, 245

less Increase in Equity 1, 590
Total 5, 655

PROBLEM 2: CALCULATING EFN

An increase of sales to 7, 434 is an increase of:

Sales Increase= (7, 434 - 6,300)/6,300
= 18% or .18

PRO FORMA INCOME STATEMENT PRO FORMA BALANCE SHEET

Sales 7, 434 Assets 21, 594 Debt 12, 400

Costs 4, 590 Equity 8, 744
Net Income 2, 844 Total 21, 594 Total 21, 144

If no dividends are paid, the equity account will increase by the net income, so:
Equity= 5, 900 + 2, 844
= 8, 744

External Financing Needed

EFN= Total assets - total liabilities and equity
= 21, 594 - 21, 144
= 450
PROBLEM 3: CALCULATING EFN

EFN= Total assets - total liabilities and equity

= 98, 000 - 98, 000
=0

PROBLEM 4: SALES AND GROWTH

ROE= NI/TE Sustainable Growth Rate

= 8, 910/56, 000 SGR= (ROE*b)/[1- (ROE*b)
= .1591 or 15. 91% = (.1591*.70)/[1-0.1591(.70)]
= .11137/.88863
Plowback ratio = .1253 0r 12. 53%
b= 1-.30
b= .70 Maximum Increase in Sales:
= 42, 000 (.1253)
= 5, 262.6

PROBLEM 5: CALCULATING RETAINED EARNINGS FROM PRO FORMA INCOME

PRO FORMA INCOME STATEMENT

Sales 45, 600

Cost 22, 080
taxable Income 23, 250
Taxes (34%) 7, 996.80
Net Income 15, 523.20

taxes (34%)= 6, 664

dividends= (5, 200/12, 936)(15, 524)

= 6, 240

Addition to Retained earnings

= 15, 523.20- 6, 240
= 9, 283.20
PROBLEM 6: APPLYING PERCENTAGE OF SALES

Jordan Corporation
Balance Sheet

Assets Pesos %

Current Assets
Assets 3,050 8.03
Accounts Receivables 6,900 18.16
Inventory 7,600 20
Total 17,550 46.18
Fixed Assets
Net Plant and Equipment 34,500 90.79
Total Assets 52,050 136.97

Liabilities and Owner's Equity

Current Liabilities
Accounts Payable 1,300 3.42
Notes Payable 6,800 n/a
Total 8,100 n/a
Long-term Debt 25,000 n/a
Owner's Equity n/a
Common stock and paid in surplus 15,000 n/a
Retained Earnings 3,950 n/a
Total 18,950 n/a
Total Liabilities and Owner's Equity 52,050 n/a
PROBLEM 7: EXTERNAL FINANCING REQUIREMENT

Lewis Company
Pro Forma Income Statement
December 31, 20x4
(Million in Pesos)

20x4 (1+g) 1st Pass 20x5 AFN Effects 2nd Pass 20x5
Sales ₱ 8,000.00 1.2 ₱ 9,600.00 ₱ 9,600.00
Operating Cost 7450 1.2 8940 8940
EBIT ₱ 550.00 ₱ 660.00 ₱ 660.00
Interest 150 150 (+)30 180
EBT ₱ 400.00 ₱ 510.00 ₱ 480.00
Taxes (40%) 160 204 192
Net Income ₱ 240.00 ₱ 306.00 ₱ 288.00

Dividends = Php 188

Addition to Retained Earnings = php 99
Change in Interest Expense = php 30

Change in 20x5 dividends = php 24

Change in Addition to Retained Earnings = (42)
Problem 7: Continuation
Lewis Company
Pro Forma Balance Sheet
December 31, 20x4

20x4 (1+g) additions 1st pass 20x5 AFN Effects 2nd pass 20x5
Cash 80 1.2 96 96
Accounts Receivable 240 1.2 288 288
Inventory 720 1.2 864 864
Total Current Assets 1,040 1,248 1,248

Fixed Assets 3,200 1.2 3,840 3,840

Total Assets 4,240 5,088 5,088

Accounts Payable 160 1.2 192 192

Accruals 40 1.2 48 48
Notes payable 252 252 (+)51 252
Total Current Liabilities 452 492 543

Long-term Debt 1,244 1,244 (+)248 1,492

Total Debt 1,696 1,736 2,035

Common Stock 1,605 1,605 (+)368 1,973

Retained Earnings 939 1,080 -42 1,038
Total Liabilities and Equity 4,240 4,421 5,046
AFN 667 42

PROBLEM 8: LONG-TERM FINANCING NEEDED

a. Total Debt = Accounts payable + Long term debt

Total Debt = 375,000 + 105,000
Total Debt = Php 480,000

b. Long Term Financing Needed = Required Increase in Assets – spontaneous increase in Liabilities -
Increase in Retained Earnings
Long Term Financing Needed = 300,000 – 93,750 – 112,500 – 75,000
Long Term Financing Needed = Php 18,750
PROBLEM 9: ADDITIONAL FUNDS NEEDED

Pro Forma Income Statement

Sales 2,000
Net Income 100
Dividends paid 40
Additional Retained Earnings 60

Pro Forma Balance Sheet

ASSETS LIABILITIES AND EQUITY

Current Asset Current Liabilities
Cash 200 Accounts payable 50
Accounts Receivable 400 Notes payable 50
Inventory 400 Accrued expenses 150
Total Current Assets 1,000 Total Current Liabilities 250
Fixed Assets 500 Long-term Debt 400
TOTAL ASSETS 1,500 TOTAL LIABILITIES 650
Common stock 560
Retained Earnings 290
Total Equity 850
TOTAL LIABILITIES AND EQUITY 1,500

AFN= Projected increase in asset 500

less: increase in liabilities 100
less: increase in retained earnings 40
AFN= 360

PROBLEM 10: ADDITIONAL FUNDS NEEDED

Percent of Sales Method

Cash 5% Accounts Payable 30%
Accounts Receivable 30% Accrued Expenses 2.50%
Inventory 20%
Current Assets 55% Current Liabilities 32.50%

New Funds Required = Required Increase in Assets – spontaneous increase in Liabilities - Increase in
Retained Earnings
New Funds Required = 330,000 – 195,000 – 86,400
New Funds Required = Php 48,600
PROBLEM 11: PERCENT OF SALE METHOD

required new funds

= .85 (P10,000,000)- .25 (P10,000,000) - .07 (P110,000,000) (.60)
= P8,500,000 – P2,500,000 – P4,620,000
RNF= P1,380,000

PROBLEM 12: PERCENT OF SALES METHOD

a. New Funds Required = Required Increase in Assets – spontaneous increase in Liabilities -

Increase in Retained Earnings

New Funds Required = 36,000,000 – 18,000,000 – 20,700,000

New Funds Required = ( 2,700,000)

As we can see, they are in surplus, therefore there is no need for additional fund.

b. New Funds Required = Required Increase in Assets – spontaneous increase in Liabilities -

Increase in Retained Earnings

New Funds Required = 36,000,000 – 18,000,000 – 16,837,500

New Funds Required = Php1,612,500

The net profit margin increased slightly, from 8% to 9.5%, which decreases the need for external
funding. The dividend payout ratio increased tremendously, however, from 25% to 50%, necessitating
more external financing. The effect of the dividend policy change overpowered the effect of the net
profit margin change.

PROBLEM 13 EXTERNAL FUNDS REQUIREMENT

a. New Funds Required = Required Increase in Assets – spontaneous increase in Liabilities -
Increase in Retained Earnings
New Funds Required = 12,000,000- 3,750,000 – 5,750,000
New Funds Required = Php 2,500,000
b. The company will still have more earnings and don’t need too many external funds even
when they reduce the payout ratio. Due to a slower growth rate, the ability to finance the
assets is less, therefore, a less external funds will be needed. A decreased in profit margin will
tend to lower the retained earnings and will force Mercury Corporation to seek more external
fund.