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5.5 End-of-Chapter Problems

PLEASE NOTE: This book is currently in draft form; material is not final.

Exercises

  1. Using data from CABS, create pro forma income statements. CABS expects sales to increase by 5% (worst case), 10% (most likely) or 15% (best case). Using the percent of sales method (and assuming that only COGS and SG&A costs increase), create new balance sheets for the best, worst and most likely cases.

CABS Pro Forma Income Statement

Figure 5.9 CABS Income Statement (Thousands of Dollars)

  1. Using the following assumptions, create new pro forma balance sheets for CABS.

    1. The company wants to hold at least $100 in cash.
    2. The firm’s long-term debt will decrease to 82.6.
    3. No new common stock will be issued.
    4. Accounts receivable take on average 80 days to collect.
    5. The company would like to hold 25 in inventory.
    6. The tax rate will remain the same.
    7. The note payable will remain the same.
    8. The company typically pays 45 days and accounts payable are projected to be 123.

CABS Pro Forma Balance Sheet

Figure 5.10 CABS Balance Sheet (Thousands of Dollars)