Exam 15: Financial Planning and Forecasting

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $20 million. The firm also has a profit margin of 22 percent, a retention ratio of 42 percent, and expects sales of $30 million next year. If all assets and current liabilities are expected to grow with sales, how much additional funds will Gyp Sum need from external sources to fund the expected growth?

What would be the appropriate way to forecast sales for a firm that has stable year-to-year sales, but seasonally fluctuating month-to-month sales?

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

If a firm has excess capacity when calculating AFN (Additional Funds Needed), A* will most likely equal which of the following?

Suppose that the 2009 actual and 2010 projected financial statements for Carrier Corp are initially as shown below. In these tables, sales are projected to rise 40 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 40 percent rate as sales are indicated with an italics font. Assuming that Carrier Corp wants to cover the AFN with 50 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries a 10 percent interest rate?

Which of the following are considered "chunky" or "lumpy" assets?

Suppose that the 2009 actual and 2010 projected financial statements for Camera Corp are initially as shown below. In these tables, sales are projected to rise 40 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 40 percent rate as sales are indicated with an italics font. Assuming that Camera Corp wants to cover the AFN with 40 percent equity, 30 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries a 7 percent interest rate?

Which of the following will decrease the additional funds needed from external sources?

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach if it is determined that 2007 is a "stale" year?

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets and $1 million in current liabilities. The firm currently pays out 75% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in dollars)?

Financial planning involves estimating projected cash flows, which is useful for all the following except:

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $12 million in total assets and $500,000 in current liabilities. The firm currently pays out 25% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in percent)?

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets and $1 million in current liabilities. The firm currently pays out 75% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in percent)?

Goldilochs Inc. reported sales of $5 million and net income of $1 million. The firm has $10.5 million in total assets. The firm's chief financial officer is projecting a 20% increase in sales. If the firm's sales do increase by 20%, it is expected that spontaneous liabilities will increase by $1 million. The firm currently pays out 30% of its net income to shareholders. Assuming that all assets are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

Silly Putty Inc. has had sales of $12 million, $17 million, and $16 million for each of the last 3 years. What would be the MAPE if the actual sales were $15 million using the average approach?

Suppose that Psy Ops Industries currently has the balance sheet shown below, and that sales for the year just ended were $6 million. The firm also has a profit margin of 9 percent, a retention ratio of 5 percent, and expects sales of $8.5 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, how much additional funds will Psy Ops need from external sources to fund the expected growth?

Which of the following can be computed as: Necessary increase in assets minus spontaneous increase in liabilities minus projected increase in retained earnings?

Which of the following statements is correct?

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, what is the necessary increase in assets?

Suppose that the 2009 actual and 2010 projected financial statements for Cramner Corp are initially as shown below. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Cramner Corp wants to cover the AFN with 45 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?