For the ended in 1995, Tire City had sales of $23,505,000.00. Net income for that period was $1,190,000.00. During the p

[answerhappygod]

For the ended in 1995, Tire City had sales of $23,505,000.00.
Net income for that period was $1,190,000.00. During the previous 3
years, sales had grown at a compound annual rate in excess of
20%.
In 1991, Tire City had borrowed from Mid-Bank to build a
warehouse. This loan was being repaid in equal annual installments
of $125,000.00. At the end of 1995, the balance due on the loan was
$875,000.00. Also, in 1991 Tire City established a line of credit
at Mid Bank. The company had not yet borrowed any money under this
credit arrangement.
Tire City decided to expand its warehouse facilities. During the
next 18 months, Tire City planned to invest $2,400,000.00 in the
expansion, $2,000,000.00 of which would be spent during 1996 (no
other capital expenditures would be spent in 1997 and 1997). The
expansion project will be completed in 1997. Therefore no
depreciation could be deducted in 1996. However, Tire City was told
they could depreciate the warehouse by 5% of the total cost in
1997. Total depreciation expense on its other assets in 1996 and
1997 would be the same as it was in 1995.
During the construction of the warehouse, inventories would drop
to a level of $1,625,000.00 by the end of 1996, much lower than the
$2,190,000.00 shown at the end of 1995. However, this temporary
drop would only last until the end of 1997 where inventory would
raise back to the same proportional relationship to sales that it
had in 1995.
Cash balances would be maintained at a level of 3% of sale
during the next 2 years. Although the federal corporate tax rate
was 35%, the average tax rate on Tire City pre-taxed income had
typically been higher than this due to misc. local taxes. Future
taxation was expected to continue in future at rates consistent
with the most recent past experiences. Dividend payouts will remain
the same in the foreseeable future.
The construction loan from Mid-Bank will be drawn in two
separate parts. One in 1996 and one in 1997. The loan would be
repaid in 4 equal annual installments. The first installment
payment would take place one year after construction of the
warehouse was completed (1998). The interest rate is set at 10% per
year.
In preparation for this loan, we are creating a pro forma and
projecting a 20% increase in sales each year in 1996 and 1997 from
$23,505,000 to $28,206,000 and 33,847,000.
Use historical financial statements for the years 1993, 1994,
and 1995 to develop pro forma financial statements for the company
(both an income statement and a balance sheet). As outlined in the
case, your firm projects a 20% increase in sales for 1996 and
1997.
For years ending 12/31
1993
1994
1995
1996
1997
INCOME STATEMENT
Net sales
$16,230
$20,355
$23,505
Cost of sales
9,430
11,898
13,612
Gross profit
6,800
8,457
9,893
Selling, general, and administrative
expenses
5,195
6,352
7,471
Depreciation
160
180
213
Net interest expense
119
106
94
Pre-tax income
1,326
1,819
2,115
Income taxes
546
822
925
Net income
$780
$997
$1,190
Dividends
$155
$200
$240
BALANCE SHEET
Assets
Cash
$508
$609
$706
Accounts receivable
2,545
3,095
3,652
Inventories
1,630
1,838
2,190
Total current assets
4,683
5,542
6,548
Gross plant & equipment
3,232
3,795
4,163
Accumulated depreciation
1,335
1,515
1,728
Net plant & equipment
1,897
2,280
2,435
Total assets
$6,580
$7,822
$8,983
LIABILITIES
Current maturities of
long-term debt
$125
$125
$125
Accounts payable
1,042
1,325
1,440
Accrued expenses
1,145
1,432
1,653
Total current liabilities
2,312
2,882
3,218
Long-term debt
1,000
875
750
Common stock
1,135
1,135
1,135
Retained earnings
2,133
2,930
3,880
Total shareholders’ equity
3,268
4,065
5,015
Total liabilities
$6,580
$7,822
$8,983