Clarkson Lumber Company Pro Forma Statement Essay

Assumptions. We build pro-forma statement mostly based on the assumptions given in the case. Other assumptions are adjacent. At first, we appropriate that the appraise wander is an average of tax rates for the past three days which is 20. 1%. We use this tax rate to calculate the provision for income taxes for following years. Next assumption is that we take Mr. Dadges approximation for the initial rate as the interest rate, 11%.Since Mr. Clarkson finished payment to Mr. Holtz in 1995, we assume that moreover the bank loan to Suburban topic Bank and Northrup National Bank are the interest-bearing liabilities for 1996 through 1999. For account pay able-bodied period, we cypher two numbers, 53. 62 days for 1995 and 54. 86 for the first quarter of 1996. We utilise the payable period for 1995 to calculate the accounts payables for the forecasted years because, as mentioned in the case, Mr.Clarksons business has some seasonality so hat the payable period for the only first quarte r of 1996 would not fully reflect for a strong year. We decided not to include 2% discounts for early payment to the suppliers on our income statement because of the payable period. We also assume that Mr. Clarkson issued no new equities and give no dividends during the forecasted years. Only source of the change in the net cost is the net income for the same period. New source field of operation. The new acknowledgment line of $750,000 would be sufficient only for 1996 and 1997.The bank loan would exceed the credit line to 858,000 and 1,109,000 for 1998 and 1999, according to our pro forma statement. Without the approval of the bank, Mr. Clarkson would not be able to expand his business at the current growth rate later on 1998. With the assumption of sales growth rate of 25%, the external financial support required has become double from $493,000 in 1996 to $1,109,000 in 1999. Since the new credit line is fixed at $750,000, Mr. Clarkson would have to find other ship canal o f financing the operation such as issuing new equity.