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Financial Planning and Forecasting5

Financial Planning and Forecasting5 - D E 25 \$28.16 \$39.89...

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Old Exam Questions - Financial Planning and Forecasting Page 25 of 35 Pages D. \$28.16 E. \$39.89 25. Assume that you are given the following historical relationship between a firm’s sales and its level of inventory. Year Sales Inventory 1 \$3,875.24 \$3,471.67 2 \$4,172.83 \$3,685.94 3 \$4,783.29 \$4,125.47 4 \$5,893.67 \$4,924.94 5 \$7,231.91 \$5,888.48 Based on this data, and using regression analysis, determine the level of safety stocks that the firm appears to hold. A. \$643.25 B. \$675.10 C. \$667.82 D. \$681.50 E. \$659.37 YOU ARE GIVEN THE FOLLOWING INFORMATION FOR QUESTIONS 26 - 29: Income Statement Year 0 Year 1 (1 st ) Year 1 (2 nd ) Sales \$1,500.00 Operating Costs -\$1,275.00 Depreciation -\$ 60.00 EBIT \$ 165.00 Interest -\$ 30.00 EBT \$ 135.00 Taxes (40%) -\$ 54.00 Net Income \$ 81.00 Dividends Paid Out \$ 32.40 Assets Year 0 Year 1 (1 st ) Year 1 (2 nd ) Cash \$ 20.00 Accounts Receivable \$ 200.00 Inventories \$ 240.00 Current Assets \$ 460.00

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Old Exam Questions - Financial Planning and Forecasting Page 26 of 35 Pages Gross Plant & Equipment \$1,200.00 Less: Depreciation -\$ 560.00 Net Plant & Equipment \$ 640.00 Total Assets \$1,100.00 Liabilities & Equity Year 0 Year 1 (1 st ) Year 1 (2 nd ) Accounts Payable \$ 150.00 Notes Payable \$ 100.00 Accruals \$ 100.00 Current Liabilities \$ 350.00 Long-Term Debt \$ 200.00 Common Stock \$ 372.00 Retained Earnings \$ 178.00 Total Liabilities & Equity \$1,100.00 Additional Funds Needed 26. Assume that the firm expects sales to increase by 20 percent in Year 1, that total assets, accounts payable, and accruals can be expressed as a percent of sales, and that the firm’s profit margin and dividend payout rate will remain the same as in Year 0. Based on this information, and using the equation method, determine the firm’s additional funds needed for Year 1. 27. Using a straight percent of sales forecasting method, you would forecast that inventories would increase to \$312.00 in Year 1 if sales increase by 30 percent (\$240*1.30 = \$312). However, assume that the true relationship was determined by regression analysis to be as follows: Inventory = \$112.50 + (0.085)(Sales) Based on this information, determine the difference in inventory levels forecasted by these two methods.
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Financial Planning and Forecasting5 - D E 25 \$28.16 \$39.89...

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