Amalgamated Enterprises Is Planning to Purchase Some New Equipment

question 13

Essay

Amalgamated Enterprises is planning to purchase some new equipment. With this new equipment, the company expects sales to increase from $8,000,000 to $10,000,000. A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue. The company knows that current assets, fixed assets, accounts payable, and accrued expenses increase in direct proportion with sales. The company's net profit margin on sales is 8%, and the company plans to pay 40% of its after-tax earnings in dividends. A copy of the company's current balance sheet is given below:
Amalgamated Enterprises Balance Sheet
Current assets $3,000,000
Fixed assets 12,000,000
Total assets $15,000,000
Accounts payable $4,000,000
Accrued expenses 1,000,000
Long-term debt 3,000,000
Common stock 2,000,000
Retained earnings 5,000,000
Total liabilities and net worth $15,000,000
Prepare a pro forma balance sheet for Amalgamated for next year using the percent-of-sales method and the information provided above.

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Definitions:

Substantive Rationality

A type of rationality that considers the values, ethics, and social implications of actions rather than merely focusing on the most efficient means to an end.

Formal Rationality

A decision-making process based on rules, regulations, and procedures, often associated with bureaucracy and organizational efficiency.

Ontologically

Related to the branch of metaphysics dealing with the nature of being.

Ambiguity

A state or condition that allows for multiple interpretations or lacks clear definition, often leading to confusion or uncertainty.