Exam 17: Financial Forecasting and Planning

Assume that Calamar Corp.has sales of $7.5 million and accounts payable of $450,000.The corporation utilizes the percent-of-sales method of financial forecasting.If Calamar is expected to generate sales of $9 million next year,what will the firm's accounts payable be?

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: Amalgamated Enterprises Balance Sheet Current assets $3,000,000 Fixed assets 12,000,000 Total assets $15,000,000 Accounts payable $4,000,000 Accrued expenses 1,000,000 Long-term debt 3,000,000 Common stock 2,000,000 Retained earnings 5,000,000 Total liabilities and net worth $15,000,000 Prepare a pro forma balance sheet for Amalgamated for next year using the percent-of-sales method and the information provided above.

Based on the information in Table 2,how much short-term financing is needed by March 30,2014?

Based on the information in Table 1,what is Dorian's projected cumulative short-term borrowing as of April 30,2014?

Home to House Distributors is preparing a cash budget.The initial conclusion is that the firm will need to borrow more money than its bank is willing to lend.Which of the following actions could Home to House Distributors perform to reduce its need for bank financing this year?

Based on the information in Table 3,what is Thompson's projected cumulative borrowing as of March 1,2014?

Which of the following is a source of external capital?

The key ingredient in a firm's financial planning is the sales forecast.

Typical steps in the financial planning process include

Lindsey Insurance Co.has current sales of $10 million and predicts next year's sales will grow to $14 million.Current assets are $3 million and fixed assets are $4 million.The firm's net profit margin is 7% after taxes.Presently,Lindsey has $900,000 in accounts payable,$1.1 million in long-term debt,and $5 million (including $2.5 million in retained earnings)in common equity.Next year,Lindsey projects that current assets will rise in direct proportion to the forecasted sales,and that fixed assets will rise by $500,000.Lindsey also plans to pay dividends of $400,000 to common shareholders. a.What are Lindsey's total financing needs for the upcoming year? b.Given the above information,what are Lindsey's discretionary financing needs?

The cash budget ignores discretionary financing.

Which of the following assumptions is not required by the percent of sales method?

A sales forecast for the coming year would reflect

Which of the following is NOT an element of the cash budget?

Holding other things constant,a firm's "discretionary financing needed" (the additional funds required in order to finance the firm)would be reduced if the firm experienced an increase in which of the following?

The balance sheet of the Jackson Company is presented below: Jackson Company Balance Sheet March 31,2014 (Millions of Dollars) Current assets $12 Accounts payable $6 Fixed assets 18 Long-term debt 12 Total $30 Common equity 12 Total $30 For the year ending March 31,2014,Jackson had sales of $35 million.The common stockholders received all net earnings of the firm in the form of cash dividends,leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets). Construct a pro forma balance sheet for March 31,2015 for an expected level of sales of $45 million.Assume current assets and accounts payable vary as a percent of sales,and fixed assets remain at the present level.Use notes payable as a source of discretionary financing.

Use the following information and the percent-of-sales method to answer the following question(s). Below is the 2014 year-end balance sheet for Banner,Inc.Sales for 2014 were $1,600,000 and are expected to be $2,000,000 during 2015.In addition,we know that Banner plans to pay $90,000 in 2015 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,Inc.Balance Sheet December 31,2014 Assets Current assets $890,000 Net fixed assets 1,000,000 Total $1,890,000 Liabilities and Owners' Equity Accounts payable $160,000 Accrued expenses 100,000 Notes payable 700,000 Long-term debt 300,000 Total liabilities 1,260,000 Common stock (plus paid-in capital)360,000 Retained earnings 270,000 Common equity 630,000 Total 1,890,000 -Banner's projected accounts payable balance for 2015 is

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilizes the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

The preparation of pro forma financial statements accomplishes which of the following objectives?