Exam 17: Financial Forecasting and Planning

Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal 2002;sales were $3,450,000 in fiscal 2001.Assume the following figures for the fiscal year ending 2001: cash $70,000;accounts receivable $250,000;inventory $400,000;net fixed assets $520,000;accounts payable $235,000;and accruals $155,000.Use the percent-of-sales method to forecast cash for the fiscal year ending 2002.

What is meant by discretionary financing?

Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1,2004 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1,2004.Assume that the interest rate on short-term borrowing is 1% per month. -Based on the information in Table 2,what was Fielding's projected loss for March?

Use the following information and the percent-of-sales method to answer the following question(s). Below is the 2004 year-end balance sheet for Banner,Inc.Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005.In addition,we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales.(For consistency with the Answer selections provided,round your forecast percentages to two decimals. ) -Banner's projected retained earnings for 2005 are:

The projected change in retained earnings equals projected net income less any dividends to be paid.

25% of sales is collected in cash at the time of the sale,50% is collected in the month following the sale,and the remaining 25% is collected in the second month following the sale.Cost of goods sold is 75% of sales.Purchases are made in the month prior to the sale,and payments for purchases are made in the month of the sale.Total other cash expenses are $60,000/month.The company's cash balance as of February 28,2004 will be $40,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short-term borrowing as of February 28,2004.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $25,000 at the beginning of each month.Round all answers to the nearest $100. -Based on the information in Table 1,what is Dorian's projected cumulative short-term borrowing as of April 30,2004?

Which of the following accounts would normally increase with an increase in sales and approximately in proportion to the sales increase?

A budget is a forecast of future events.

Use the following information and the percent-of-sales method to answer the following question(s). Below is the 2004 year-end balance sheet for Banner,Inc.Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005.In addition,we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales.(For consistency with the Answer selections provided,round your forecast percentages to two decimals. ) -Banner's projected long-term debt for 2005 is:

The cash budget can be used to provide an estimate of the firm's future financing needs.

Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1,2004 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1,2004.Assume that the interest rate on short-term borrowing is 1% per month. -Based on the information contained in Table 2,what are Fielding's projected total receipts (collections)for April?

Amalgamated Enterprises is planning to purchase some new equipment.With this new equipment,the company expects sales to increase from $8,000,000 to $10,000,000.A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue.The company knows that current assets,fixed assets,accounts payable,and accrued expenses increase in direct proportion with sales.The company's net profit margin on sales is 8%,and the company plans to pay 40% of its after-tax earnings in dividends.A copy of the company's current balance sheet is given below: Prepare a pro forma balance sheet for Amalgamated for next year using the percent-of-sales method and the information provided above.

Which of the following is NOT a basic function of a budget?

Pro forma statements are important since they formally report the performance of the firm during a previous reporting period.