24. Which of the following statements is CORRECT? a. Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.Page 668 Problems Chapter 16: Forecastingb. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.c. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management’s historical performance is evaluated.d. The capital intensity ratio gives us an idea of the physical condition of the firm’s fixed assets.e. The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy and economies of scale exist.(16-3) Excess capacity C K Answer: a EASYProblems 25. Last year Godinho Corp. had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity. Inmillions, how large could sales have been if the company had operated atfull capacity? 26. Kamath-Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales). The company expects sales of $400 million during the current year, and it expects sales to grow by 30% next year. What is the inventory forecast for next year? All dollars are in millions.
27. Last year Wei Guan Inc. had $350 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity. In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?
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- Spring '08
- Sales, AFN