Magee Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, and ships them to its chain of retail…
BBS Fundamentals of Corporate Finance · 2079 · Solved Question with Answer
Magee Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, and ships them to its chain of retail stores. Magee's balance sheet as of December 31, 2018, is shown here (Rs millions):
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Balance Sheet as of December 31, 2018
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| Assets | Liabilities and Owners' Equity |
| Current assets | Current liabilities |
| Cash Rs 3.5 | Accounts Payable Rs 9.0 |
| Accounts Receivable 26.0 | Notes payable 18.0 |
| Inventory 58.0 | Accruals 8.5 |
| Total current assets Rs 87.5 | Total Current Liabilities Rs 35.5 |
| Fixed assets | Long-term debt 6.0 |
| Net plant and equipment Rs 35.0 | Owners' equity |
| Common stock and paid-in surplus Rs 15.0 | |
| Retained earnings 66.0 | |
| Total assets Rs 122.5 | Total liabilities and owners' equity Rs 122.5 |
Sales for 2018 were Rs. 350 million, while net income for the year was Rs. 10.5 million. Magee paid dividends of Rs. 4.2 million to common stockholders. Sales are projected to increase by Rs. 70 million or 20 percent during 2019. The firm is operating at full capacity. Assume that the profit margin and dividend payout ratios remain constant.
a. Using the equation, calculate the external funds needed for next year.
b. Construct Magee's pro forma balance sheet for December 31, 2019. Assume that all external capital requirements are met by bank loans and are reflected in notes payable.