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Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas Generate a pro forma income statement

for Butler Lumber using the percentage-of-sales method. Make projections without trade discounts (a) and with trade discounts (b). Use the following assumptions when performing your calculations:

a) Butler Lumbers 1991 sales will be $3.6 million, as estimated in the case study. b) Other historical relationships within the financial statements that prevailed in 1990 will continue in 1991. Use the percentof-forecast-sales method to calculate values unless the value is otherwise known. c) Butler Lumbers average trade discount is 2 percent of purchase price. Assume if Butler Lumber takes advantage of discounts it does so starting April 1, 1991. d) Butler Lumbers tax rate is 35 percent. average principal balance outstanding e) Remember that interest is being paid at 10.50 percent and calculated on the during the year. Normally you would need to estimate this expense. For the sake of simplicity, assume 1991 interest expense is $40,000 if no discounts are taken and $53,000 if the discounts are taken.

f) Assume the current portion of long-term debt stays at the same level, i.e., $7,000. g) If Butler Lumber takes advantage of trade discounts, the Accounts Payable balance at the end of 1991 will be $75,000. h) Butler plans to obtain any additional financing it needs by increasing its notes payable to the bank. After you have completed and checked your work, you will generate the pro forma balance sheet. Butler Lumber Company Income Statement For the Years Ending December 31, 1988-1990 and Pro Forma Income Statement for 1991 (in thousands of dollars) % of 1988 Net sales Cost of goods sold Beginning inventory Plus Purchases $ Less Ending inventory Total cost of goods sold Gross profit Less Operating expenses Operating income Plus: 2% discounts Less Interest expense Net income before taxes Less Provision for income taxes Net income (a) No discounts (b) With discounts $ $ 13 37 6 31 $ $ 20 41 7 34 $ $ 33 53 9 44 $ $ $ 183 1,278 1,461 239 1,222 475 425 50 $ $ $ $ 239 1,524 1,763 326 1,437 576 515 61 $ $ $ $ 326 2,042 2,368 418 1,950 744 658 86 $ 1,697 $ 1989 2,013 $ 1990 2,694 Sales Projected 1991 (a) Projected 1991 (b)

Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas Correct Answers: Butler Lumber Company Income Statement For the Years Ending December 31, 1988-1990 and Pro Forma Income Statement for 1991 (in thousands of dollars) % of 1988 Net sales Cost of goods sold Beginning inventory Plus Purchases $ Less Ending inventory Total cost of goods sold Gross profit Less Operating expenses Operating income Plus: 2% discounts Less Interest expense Net income before taxes Less Provision for income taxes Net income (a) No discounts (b) With discounts $ $ $ $ $ 183 1,278 1,461 239 1,222 475 425 50 13 37 6 31 $ $ $ $ $ $ 239 1,524 1,763 326 1,437 576 515 61 20 41 7 34 $ $ $ $ $ $ 326 2,042 2,368 418 1,950 744 658 86 33 53 9 44 $ $ 40 75 26 49 $ $ 24.4% $ 15.5% 72.4% $ $ $ 418 2,746 3,164 558 2,606 994 878 115 $ $ $ $ 418 2,746 3,164 558 2,606 994 878 115 41 53 103 36 67 $ 1,697 $ 1989 2,013 $ 1990 2,694 Sales $ Projected 1991 (a) 3,600 $ Projected 1991 (b) 3,600

Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas Generate a pro forma balance sheet for Butler Lumber using the percentage-of-sales method. Make projections without trade discounts (a) and with trade discounts (b). Also calculate the size of the loan Butler Lumber will require with and without trade discounts. Use the following assumptions when performing your calculations:

a) Butler Lumbers 1991 sales will be $3.6 million, as estimated in the case study.

b) Other historical relationships within the financial statements that prevailed in 1990 will continue in 1991. Use the percent-of-foreca sales method to calculate values unless the value is otherwise known. c) Butler Lumbers average trade discount is 2 percent of purchase price. Assume if Butler Lumber takes advantage of discounts it does so starting April 1, 1991. d) Butler Lumbers tax rate is 35 percent. average principal balance outstanding during the year. e) Remember that interest is being paid at 10.50 percent and calculated on the Normally you would need to estimate this expense. For the sake of simplicity, assume 1991 interest expense is $40,000 if no discounts are taken and $53,000 if the discounts are taken.

f) Assume the current portion of long-term debt stays at the same level, i.e. $7,000. g) If Butler Lumber takes advantage of trade discounts, the Accounts Payable balance at the end of 1991 will be $75,000 h) Butler plans to obtain any additional financing it needs by increasing its notes payable to the bank. Butler Lumber Company Balance Sheet For the Years Ending December 31, 1988-1990 and Pro Forma Balance Sheet for 1991 (in thousands of dollars)

% of 1988 Cash Accounts receivable Inventory Total current assets Property (net) Total assets Notes payable, bank Notes payable, Mr. Stark Accounts payable, trade Accrued expenses Current portion of long-term debt Total current liabilities Long-term debt Total liabilities Net worth Total liabilities and shareholders' equity $ $ $ $ $ $ $ 58 171 239 468 126 594 105 124 24 7 260 64 324 270 594 $ $ $ $ $ $ $ 1989 49 222 325 596 140 736 146 192 30 7 375 57 432 304 736 $ $ $ $ $ $ $ 1990 41 317 418 776 157 933 233 256 39 7 535 50 585 348 933 Sales

Projected 1991 (a)

Projected 1991 (b)

Loan Amount Needed without discounts $ $ with discounts -

Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas Correct Answers: Butler Lumber Company Balance Sheet For the Years Ending December 31, 1988-1990 and Pro Forma Balance Sheet for 1991 (in thousands of dollars) % of 1988 Cash Accounts receivable Inventory Total current assets Property (net) Total assets Notes payable, bank Notes payable, Mr. Stark Accounts payable, trade Accrued expenses Current portion of long-term debt Total current liabilities Long-term debt Total liabilities Net worth Total liabilities and shareholders' equity $ $ $ $ $ $ $ 58 171 239 468 126 594 105 124 24 7 260 64 324 270 594 $ $ $ $ $ $ $ 1989 49 222 325 596 140 736 146 192 30 7 375 57 432 304 736 $ $ $ $ $ $ $ 1990 41 317 418 776 157 933 233 256 39 7 535 50 585 348 933 $ $ $ 9.5% 1.4% 5.8% $ $ Sales 1.5% 11.8% 15.5% $ $ Projected 1991 (a) 55 424 559 1,038 210 1,248 407 342 52 7 808 43 851 397 1,248 $ $ $ $ $ $ $ Projected 1991 (b) 55 424 559 1,038 210 1,248 388 342 52 7 789 43 832 416 1,248

Loan Amount Needed without discounts 407 with discounts 388