Exam 15: Financial Planning and Forecasting

Goldilochs Inc. reported sales of $8 million and net income of $2 million. The firm has a total asset turnover of 3.2. The firm's chief financial officer is projecting a $5 million increase in sales and that spontaneous liabilities will increase by $350,000 automatically. The firm currently pays out 80% of its net income to shareholders. Assuming that all assets and current liabilities are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

Which liabilities would tend to spontaneously increase with sales? Why?

The set of assumptions underlying the firm's financial plan and the resulting projected financial statements are accordingly often referred to as which of the following?

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 dollars)?

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 naïve approach?

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 19 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?

What are two issues that are not addressed regarding fixed assets if one simply uses the AFN formula in its simplest form? How would they impact the AFN calculation?

How is the capital intensity ratio calculated? How is it used in the AFN formula?

Which of the following is the amount of external financing a firm must seek in order to change the asset base as necessary to support a different level of sales?

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?

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 was determined that 2008 is a "stale" year?

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 projected increase in retained earnings?

Suppose you were forecasting sales for a firm that exhibited a cyclical pattern within each week. How would you go about forecasting sales for this firm?

Articulate the rationale of the additional funds needed approach to estimating the need for a firm to seek external financing.

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, how much will spontaneous liabilities increase with the increase in sales?

Which of the following statements is incorrect?

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 20 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, how much will spontaneous liabilities increase with the increase in sales?

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?

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?

Explain when it is appropriate to use the naïve, average, and seasonality- and trend-adjusted approaches to forecasting sales.