Exam 15: Financial Planning and Forecasting

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, 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?

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?

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 percent 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)?

The additional funds needed by the firm can be calculated by assuming which of the following?

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?

Which of the following is likely to increase the firm's additional funds needed?

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 that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $12 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, what is the necessary increase in assets?

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 percent 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)?

Suppose a firm was planning to greatly reduce its raw materials inventory next year by introducing just-in-time inventory control procedures. Assuming no other changes to the firm's operations, what would this do to AFN?