Question: The Haverly Company expects to finish the
The Haverly Company expects to finish the current year with the following financial results, and is developing its Annual Plan for next year.
The following facts are available
1. Payables are almost entirely due to inventory purchases, and can be estimated through COGS, which is approximately 45% purchased material.
2. Currently owned assets will depreciate an additional $1,840,000 next year.
3. There are two balance sheet accruals. The first is for unpaid wages. The current payroll of $32 million is expected to grow by 12% next year. The closing date of the year will be six working days after a payday. The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices have not yet been received. This materials accrual is generally about 10% of the payables balance at year end.
4. The combined state and federal income tax rate is 42%.
5. Interest on current and future borrowing will be at a rate of 12%.
PLANNING ASSUMPTIONS
Income Statement Items
1. Revenue will grow by 13% with no change in product mix. However, competitive pressure is expected to force some reductions in pricing.
2. The pressure on prices will result in a 1.5% deterioration in next year's cost ratio.
3. Spending in the marketing department is considered excessive and will be held to 21% of revenue next year.
4. Due to a major development project, expenses in the engineering department will increase by 20%.
5. Finance and administration expenses will increase by 6%.
Assets and Liabilities
6. An enhanced cash management system will reduce cash balances by 10%.
7. The ACP will be reduced by 15 days. (Calculate the current value to arrive at the target.)
8. The inventory turnover ratio (COGS/Inv.) will decrease by .5ï‚´.
9. Capital spending is expected to be $7 million. The average depreciation life of the assets to be acquired is five years. The firm uses straight-line depreciation, and takes a half-year in the first year.
10. Bills are currently paid in 50 days. Plans are to shorten that to 40 days.
11. A dividend totaling $1.5 million will be paid next year. No new stock will be sold.
Develop next year's financial plan for Haverly based on these assumptions and last year's financial statements. Include a projected income statement, balance sheet and a statement of cash flows.
Transcribed Image Text:
HAVERLY COMPANY THIS YEAR INCOME STATEMENT (S000) $ $73,820 31,743 $42,077 Revenue 100.0 COGS 43.0 Gross Margin 57.0 Expenses: Marketing Engineering Fin & Admin Total Expense $17,422 7,087 7,603 $32,112 23.6 9.6 10.3 43.5 $ 9,965 $ 2,805 $ 7,160 $ 3,007 $ 4,153 EBIT 13.5 Interest 3.8 EBT 9.7 Income Tax 4.1 Net Income 5.6 HAVERLY COMPANY THIS YEAR BALACE SHEET (S000) Cash Accounts Rec. Inventory Current Assets ASSETS $ 8,940 $12,303 $ 7,054 $28,297 LIABILITIES & EQUITY $ 1,984 $ 860 $ 2,844 Accounts Payable Accruals Current Liabilities Long Term Debt EQUITY Stock Accounts $22,630 Fixed Assets $65,223 ($23,987) $41,236 $18,500 $25,559 $44,059 Gross Accum. Deprec. Retained Earn. Net Total EQUITY Total Assets $69,533 Total L&E $69,533
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