The balance sheet of the Emery Company is presented below: ...

[sammy]

The balance sheet of the Emery Company is presented below:
 
  Emery Company Balance Sheet
  March 31, 2010
  (Millions of Dollars)
  Current assets 18 Accounts payable 9
  Fixed assets 38 Notes payable 0
  Total 56 Long-term debt 15
  Common equity 32
  Total 56
  For the year ending March 31, 2010, Jackson had sales of 58 million. The common stockholders receive all net
  earnings of the firm in the form of cash dividends, leaving no funds from earnings available to the firm for
  expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets).
  Construct a pro forma balance sheet for March 31, 2011 for an expected level of sales of 75.4 million. Assume
  current assets and accounts payable vary as a percent of sales, and fixed assets remain at the present level. Use
  notes payable as discretionary financing.

Question 2

Your company is considering an investment in one of two mutually exclusive projects. Project 1
  involves a labor intensive production process. Initial outlay for Project 1 is 1,495 with expected
  after-tax cash flows of 500 per year in years 1-5.
 
  Project 2 involves a capital intensive process,
  requiring an initial outlay of 6,704. After-tax cash flows for Project 2 are expected to be 2,000 per
  year for years 1-5. Your firm's discount rate is 10. If your company is not subject to capital
  rationing, which project(s) should you take on?
  A) Project 2 B) Project 1
  C) Projects 1 and 2 D) Neither project is acceptable.

[Eunice618]

Answer to Question 1

Jackson Company
Pro Forma Balance Sheet
March 31, 2011
Current assets 23.4 Accounts payable 11.7
Fixed assets 38.0 Notes payable 2.7
Total 61.4 Long-term debt 15.0
Common equity 32.0
Total 61.4

Answer to Question 2

A