Identifying external borrowings requirement

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Reference no: EM1314482

Identifying the External borrowings requirement or excess cash generated by preparing the pro-forma balance sheet.

It is now the end of year 2009. You have been asked to help the Nero Violin Company (whose motto is "There'll be a hot time in the old town tonight!") plan for the year 2010. Nero's end-of-year balance sheet for 2009 is given below:

Balance Sheet - December 31, 2009
Cash	$100	Accounts payable	$500
Marketable securities	200	Bank notes payable	300
Accounts receivable	400	Bonds payable	400
Inventories	500	Common stock	1,000
Plant, net	1,600	Retained earnings	600
Total Assets	$2,800	Total L+E	$2,800

Sales in 2009 were $4,000; 2010 sales are forecast to be $4,400. The firm has a net profit margin of 9% and pays one-third of its earnings after taxes as dividends. The marketable securities account is used to accumulate funds for acquisitions. Since the company is operating at full capacity, it anticipates that plant will grow proportionally with increased sales. All of the bank notes payable and $50 of the bonds payable must be repaid in 2010.

Required
Forecast the firm's December 31, 2010 pro-forma balance sheet. Identify the external financing need (EFN) or excess cash generated.

Reference no: EM1314482

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