1 Using the information provided, construct a monthly cash budget for October through December 2014.Based on your analysis, will Noble enjoy a surfeit of cash, or require external financing?

2 Construct a pro forma income statement for the first fiscal quarter of 2015 and a pro forma balance sheet as of December 31, 2014. What is your estimated external financing needed for December 31? Does the December 31, 2014, estimated external financing equal your cash surplus (deficit) for this date from your cash budget?

3 Based on your answers above, construct a cash flow forecast for Noble for the period October through December 2014.

Chapter 3 Problem 7 Note: Manual calculation mode is on. You must press F9 key to calculate. Facts and Assumptions Year Net sales Growth rate in sales Cost of goods soldet sales Gen., sell,, and admin. expenseset sales Long-term debt Current portion long-term debt Interest rate Tax rate Dividend/earnings after tax Current assetset sales Net fixed assets Current liabilitieset sales Owners' equity 2014 $ 20,613 2015 2016 25% 30% 86% 86% 12% 11% $ 760 $ 660 $ 560 $ 100 $ 100 $ 100 10% 10% 45% 45% 50% 50% 29% 29% $ 280 $ 270 14.5% 14.4% $ 1,730 INCOME STATEMENT Year Net sales Cost of good sold Gross profit Gen., sell,, and admin. exp. Interest expense Earnings before tax Tax Earnings after tax Dividends paid Additions to retained earnings 2014 Forecast 2015 $ 25,766 22,159 3,607 3,092 231 285 128 156 78 78 BALANCE SHEET Current assets Net fixed assets Total assets Current liabilities Long-term debt Equity Total liabilities and shareholders' equity $ 7,472 EXTERNAL FUNDING REQUIRED $ 1,548 280 7,752 3,736 660 1,808 6,204 2016 Chapter 3 Problem 13 13. Below are the 2014 financial statements for Aquatic Supplies Co. Also appearing are management's forecasts for how individual financial statement items will vary in the future. The company expects sales to grow 12% next year. Aquatic Supplies finances all of its needs with 10-year long-term debt at 10% interest, while excess cash at the end of the year is added to the cash balance. a. Prepare a spreadsheet to estimate Aquatic Supplies 's 2015 need for external funding assuming long-term debt and interest expense remain at their 2011 levels. b. Modify your spreadsheet forecast in part (a) to capture the interdependence between the loan and interest expense. That is, switch your spreadsheet to "manual calculation" and include the necessary loan and added interest expense in your forecast. c. Is the required loan in part (b) equal to the required loan you calculated in part (a)? Why are they different? d. Perform a sensitivity analysis of Aquatic Supplies Co.'s external financing needs as determined in part (b). Assume sales grow at 17% instead of 12%. How much does the bank loan increase as sales go from 12% to 17%? e. Perform a scenario analysis on the company's projection as determined in part (b). Assume sales grow 20%, the cost of goods sold is 38% of sales, inventory falls from 5% of sales to 3%, and accounts receivable fall from 13% of sales to 10%. What happens to the loan need in this scenario relative to your answer in part (b)? f. Return now to the original assumptions and extend your projections in part (b) through 2019. Continue to assume that all external funding needs will be met with debt at 10% interest and any excess cash will add to the company's cash balance. What are your projected values for long-term debt and cash and equivalents in 2019? g. Perform a scenario analysis on your 5-year projection in part (f). Assume growth in sales is 10%, the cost of goods sold is 41% of sales, and selling, general and administrative expenses are 50% of sales. What are your projected values for long-term debt and cash balance in 2019? Aquatic Supplies Co. Income Statement (in $ millions) 2014 Sales Cost of Goods Sold Assumptions $ 582.762 240.828 12% 39% growth in sales percentage of sales Gross Profit Selling, General, & Administrative Exp. 341.934 257.507 49% percentage of sales Operating Income Before Deprec. Depreciation,Depletion,&Amortization 84.427 25.221 30% percentage of net PP&E Operating Profit Interest Expense 59.206 16.430 initially constant Pretax Income Total Income Taxes 42.776 14.971 Net income percentage of earnings before taxes 7.152 70.538 39.033 9.339 27.076 153.138 2% 13% 5% no change 6% minimum cash balance as % of sales percentage of sales percentage of sales 81.648 9.415 24.642 $ 35% 15% no change 5% percentage of sales 6% 5% no change percentage of sales percentage of sales 27.805 Balance Sheet (in $ millions) ASSETS Cash & Equivalents Account Receivable Inventories Prepaid Expenses Other Current Assets Total Current Assets $ Net Plant, Property & Equipment Intangibles Other Assets TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Other Current Liabilities Total Current Liabilities percentage of sales percentage of sales $ 268.843 $ 36.951 31.206 3.663 71.820 Long Term Debt Accrued wages Total Liabilities 157.720 21.418 250.958 EQUITY Common Stock Capital Surplus Retained Earnings Less: Treasury Stock 1.702 no change 55.513 no dividends paid so all income no change 118.729 is retained 158.059 no change TOTAL EQUITY TOTAL LIABILITIES & EQUITY 17.885 $ 268.843 initially constant 3% percentage of sales Chapter 3 Problem 14 a Using the information provided, construct a monthly cash budget for October through December 2014. Based on your analysis, will Noble enjoy a surfeit of cash, or require external financing? b Construct a pro forma income statement for the first fiscal quarter of 2015 and a pro forma balance sheet as of December 31, 2014. What is your estimated external financing needed for December 31? c Does the December 31, 2014, estimated external financing equal your cash surplus (deficit) for this date from your cash budget? d Based on your answers above, construct a cash flow forecast for Noble for the period October through December 2014. Noble Selected Information and Financial Statements Sales (20 percent for cash, the rest on 30-day credit terms): 2014 Actual July 76,000 August 88,000 September 266,000 2014 Projected October 125,000 November 51,000 December 53,000 September 257,000 2014 Projected October 62,000 November 27,000 December 26,000 Purchases (all on 60-day terms): 2014 Actual July 116,000 August 122,000 Salaries payable monthly Principal payment on debt due in December Interest due in December Dividend payable in December Taxes payable in November Addition to accumulated depreciation in December 20,000 25,700 9,000 15,000 19,000 4,000 Cash balance on October 1, 2014 Minimum desired cash balance 34,000 15,000 Noble's annual income statement and balance sheet for September 30, 2014 appear below. Additional information about the company's accounting methods and expectations for the last three months of 2014 appear in the footnotes. Noble Annual Income Statement Fiscal Year ended September 30, 2014 ($ 000) Net sales Cost of goods sold1 Gross profits Selling and administrative expenses2 Interest expense Depreciation3 Net profit before tax Tax at 33% Net profit after tax 1,581.6 1,098.0 483.6 240.0 18.0 16.0 209.6 69.2 140.4 Noble Balance Sheet September 30, 2014 ($ 000) Assets Cash Accounts receivable Inventory Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Liabilities Bank loan Accounts payable Accrued expenses4 Current portion long-term debt5 Taxes payable Total current liabilities Long-term debt Shareholders' equity Total liabilities and equity 34.0 212.8 425.0 671.8 135.0 52.0 83.0 754.8 0.0 379.0 55.0 25.7 56.0 515.7 120.0 119.1 754.8 . Cost of goods sold consists entirely of items purchased during the quarter. 1 . Selling and administrative expenses consist entirely of salaries. 2 . Depreciation is straight-line at the rate of $4,000 per quarter. 3 . Accrued expenses are not expected to change in the last quarter. 4 . $25.7 due December 2014. No payments for remainder of year. 5