Tarheel Furniture Company is planning to establish a wholly-owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary's balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average. Tarheel plans to make all sales on credit. All calculations assume a 365-day year. In your computations, you should round all numbers to the nearest $1,000. Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel's upholstery subsidiary. Industry Averages Current ration 2:1 Quick ratio 1:1 Net profit margin ratio 5% Average collection period 20 days Debt ratio 40% Total asset turnover ratio 2 times Current liabilities/stockholders equity 20% Forecasted upholstery Subsidiary Balance Sheet Cash --------- Total current liabilities ------- Accounts receivables ---------- Long term debt -------- Inventory ---------- Total Debt -------- Total current assets ----------- Stockholders equity ------- Net fixed assets ----------- Total liabilities and stockholders equity ------- Total Assets ------------
Tarheel Furniture Company is planning to establish a wholly-owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary's
Tarheel plans to make all sales on credit. All calculations assume a 365-day year. In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel's upholstery subsidiary.
Industry Averages
Current ration 2:1
Quick ratio 1:1
Net profit margin ratio 5%
Average collection period 20 days
Debt ratio 40%
Total asset turnover ratio 2 times
Current liabilities/
Cash --------- Total current liabilities -------
Inventory ---------- Total Debt --------
Total current assets ----------- Stockholders equity -------
Net fixed assets ----------- Total liabilities and
stockholders equity -------
Total Assets ------------
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