Assume that you just created a proforma balance sheet for Quality, Inc. using th
ID: 2665193 • Letter: A
Question
Assume that you just created a proforma balance sheet for Quality, Inc. using the percent of sales method. In creating the proforma statement, you assumed that Quality’s growth rate in sales would be 25% and that Quality’s projected net profit margin would be 4%. Finally, for the statement you created you found that outside funds needed (OFN) equals $216,000. Now, all else constant, if you redo your proforma statement assuming a net profit margin of 6% (instead of 4%), what will happen to your estimate of outside funds needed (OFN)?a. OFN will be greater than $216,000.
b. OFN will be less than $216,000.
c. OFN will not change (i.e., OFN for the new statement will be $216,000).
d. OFN may be greater than, less than or equal to $216,000 depending on the company’s current debt ratio.
e. Additional information is needed to answer this question.
Explanation / Answer
b. OFN will be less than $216,000.