Financial Planning and Forecasting - Solutions4

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Old Exam Questions - Financial Planning and Forecasting - Solutions Page 31 of 57 Pages 1. Sales are expected to increase by 20 percent over the coming year -- they will increase to $12,000,000. 2. Operating costs are expected to decrease to 75 percent of sales. 3. The interest rate on all debt will remain at 10 percent for 2006. 4. Taxes are expected to remain at 40 percent in 2006. 5. The firm expects to increase its dividend per share to $0.60 in 2006. 6. All current assets will increase proportionately with sales. 7. At the end of 2005, fixed assets (property plant and equipment) are being operated at only 80 percent of capacity (you may ignore depreciation). 8. Fixed assets are lumpy. If the firm must increase its fixed assets, it will do so by adding an amount equal to $2,500,000 (you may ignore depreciation). 9. Accounts payable and accruals will increase proportionately with sales. 10. Notes payable will decrease to $500,000 at the start of 2006. Given this information, do a “first pass” and determine the firm’s additional funds needed (AFN) for 2006. Income Statement (In Thousands) Year: 2005 First Pass Sales $10,000.00 Operating costs $ 8,000.00 Earnings before interest and taxes $ 2,000.00 Interest $ 250.00 Earnings before taxes $ 1,750.00 Taxes $ 700.00 Net income available to common stockholders $ 1,050.00 Common dividends $ 550.00 Balance Sheet (In Thousands) Year: 2005 First Pass Assets: Cash and marketable securities $ 1,500.00 Accounts receivable $ 4,500.00 Inventories $ 6,000.00 Total current assets $12,000.00 Property plant and equipment $ 7,500.00 Total assets $19,500.00 Liabilities and equity: Accounts payable $ 3,500.00 Notes payable $ 1,000.00 Accruals $ 2,500.00 Total current liabilities $ 7,000.00 Long-term bonds $ 1,500.00 Total liabilities $ 8,500.00
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Old Exam Questions - Financial Planning and Forecasting - Solutions Page 32 of 57 Pages Common stock (1 million shares) $10,000.00 Retained earnings $ 1,000.00 Total common equity $11,000.00 Total liabilities and equity $19,500.00 Additional Funds Needed A. $690 B. $585 C. $655 D. $725 * E. $620 Income Statement (In Thousands) Year: 2005 First Pass Sales $10,000.00 $12,000.00 Operating costs $ 8,000.00 $ 9,000.00 Earnings before interest and taxes $ 2,000.00 $ 3,000.00 Interest $ 250.00 $ 200.00 Earnings before taxes $ 1,750.00 $ 2,800.00 Taxes $ 700.00 $ 1,120.00 Net income available to common stockholders $ 1,050.00 $ 1,680.00 Common dividends $ 550.00 $ 600.00 Balance Sheet (In Thousands) Year: 2005 First Pass Assets: Cash and marketable securities $ 1,500.00 $ 1,800.00 Accounts receivable $ 4,500.00 $ 5,400.00 Inventories $ 6,000.00 $ 7,200.00 Total current assets $12,000.00 $14,400.00 Property plant and equipment $ 7,500.00 $ 7,500.00 Total assets $19,500.00 $21,900.00 Liabilities and equity: Accounts payable $ 3,500.00 $ 4,200.00 Notes payable $ 1,000.00 $ 500.00 Accruals $ 2,500.00 $ 3,000.00 Total current liabilities $ 7,000.00 $ 7,700.00 Long-term bonds $ 1,500.00 $1,500.00 Total liabilities $ 8,500.00 $9,200.00 Common stock (1 million shares) $10,000.00 $10,000.00 Retained earnings $ 1,000.00 $2,080.00
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Old Exam Questions - Financial Planning and Forecasting - Solutions Page 33 of 57 Pages Total common equity $11,000.00 $12,080.00 Total liabilities and equity $19,500.00 $21,280.00 Additional Funds Needed $620.00
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