Answer true or false to each of the following. Briefly explain your reasoning for each answer.

a. All else equal, increasing the projected amount of accounts receivable in a financial forecast will increase external funding required.

b. Estimates of external funding required based on cash flow forecasts are usually higher than estimates based on pro forma financial statements.

c. An annual financial forecast for 2022 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2022.

for 2022, as shown next.
Universal Products Co.
Financial Statements, 2021 and Pro Forma 2022 ($ thousands)
INCOME STATEMENT BALANCE SHEET Actual Forecast Actual Forecast 2021 2022 2021 2022 Sales $5,000 $5,500 Current assets $2,500 $2,750 Cost of goods sold 4,000 4,400 Net fixed assets 2,000 Operating expense 500 550 Total assets $4,500 Depreciation expense 250 260 Interest expense 50 50 Current liabilities $1,050 $1,155 Earnings before tax 200 240 Long-term debt 500 500 Tax 70 84 Owners’ equity 2,950 Net income $130 $156 Total liabilities & equity $4,500

a. Assume that Universal plans to purchase $500,000 in fixed assets during 2022 and to dispose of no fixed assets during 2022. What would be its forecast for net fixed assets in 2022?

b. Assume that Universal plans to have a dividend payout ratio of 50 percent in 2022 and will neither sell nor repurchase equity during 2022. What would be its forecast for owners’ equity in 2022?

c. Given the assumptions in questions

(a) and (b), what is Universal’s projected external funding required for 2022? LO.1