1.It is January 1^st, 2014 and Oscar D'Souza has decided to start a new business.He wants to forecast the first year's Income Statement and Balance sheet.He believes the assumptions below are reasonable - and wants you to assist him by creating the forecasted statements.You agree.Please construct an Income Statement and Balance Sheet from the information provided below.

a.First year sales will total $100,000

b.Gross margins will be 50%

c.Operating margins will be 20%

d.Accounts Receivables will be about 15% of sales

e.Inventory will be 12% of sales

f.Accounts Payable will be 5% of sales

g.Accrued expenses payable will be 7% of sales

h.The Bank of Connecticut will provide a loan of $30,000.The annual interest will be 8%, compounded annually.Interest only payments are needed - until the loan is due in 5 years, where a balloon payment for the full balance must be paid.

i.The combined federal and provincial tax rates will be 30%

j.Capital equipment purchases will be made at the start of the year.These will total $35,000.These will depreciate at 10% per year

k.D'Souza wants ending cash to be $24,500; he feels he needs this on hand at year-end

l.D'Souza will provide any other capital needed in the form of equity financing

2.It is January 1^st, 2015. 2014 turned out very well for Oscar - his projections were quite close.He wants you to project out an Income Statement, Balance Sheet and a Cash Flow Statement for 2015 using the new assumptions outlined below.

a.2015 year sales will each be 25% higher than the $110,000 realized in 2014

b.Gross margins in 2015 will be 55, 5% higher than the 50% realized in 2014

c.Operating margins will be 22%, 2% higher than 20% realized in 2014

d.Accounts Receivables will be 12% of sales, lower than the 15% seen in 2014

e.Inventory will be 15% of sales, higher than the 12% seen in 2014

f.Accounts Payable will be 4% of sales in 2015, lower than the 5% seen in 2014

g.Accrued expenses payable will be 4% of sales in 2015, lower than the 7% seen in 2014

h.The Bank of Connecticut will continue to be paid 8% interest on the $30,000 worth of loans.

i.The combined federal and provincial tax rates will be 30%

j.No new capital purchases are made

k.Closing cash is expected to remain at the same level predicted for and seen in 2014

l.Depreciation of existing capital equipment continues at the same rate observed in 2014

Appendix A1: Canadian Motorbikes Comparative Income Statement ($M) For the Years Ended Dec 31, 2009 to 2014 2011 Sales Cost of Goods Sold $209.69 $506.91 2009 2010 2012 2013 2014 $287.14 $299.45 $725.45 $793.34 $814.55 $856.00 $210.45 $559.53 $595.34 $629.43 Gross Profit $ 77.45 $ 89.00 $218.54 $233.81 $219.21 $226.57 Selling and Administration $ 57.34 $ 60.06 $104.14 $125.53 $136.57 $160.23 Depreciation $ 7.53 Operating Profit $ 12.58 $ 15.40 Interest $ 9.41 $ 12.53 Earnings Before Taxes $ Taxes $ Net Income $ $ 92.86 $ 35.51 3.17 $ 2.87 $ 57.35 1.01 $ 0.92 $ 18.35 2.16 $ 1.95 $ 39.00 $13.54 $ 21.54 $ 20.89 $ 87.39 $ 61.42 $ 39.80 $ 24.67 $ 17.96 $ 13.01 $ 62.72 $ 43.46 $ 26.79 $20.07 $ 13.91 $ 8.57 $ 42.65 $ 29.55 $ 18.22 $ 21.22 $ 26.54 tax rate 1 - tax rate 32% 68% 32% 68% 32% 68% 32% 68% 32% 32% 68% 68% Net Income + I(1-tax rate) $ 8.57 $ 10.46 $ 63.15 $ 59.43 $ 41.76 $ 27.07 Appendix A2: Canadian Motorbikes Comparative Balance Sheet ($M) For the Years Ended Dec 31, 2009 to 2014 Cash A/R Inventory Total Current Assets Land, Plant and Equipment Other Assets Total Assets A/P 2009 2010 2011 2012 2013 2014 $ 10.76 $ 20.56 $ 25.78 $ 38.55 $ 34.21 $ 29.75 $ 45.01 $ 48.54 $ 84.89 $ 85.39 $ 95.32 $ 99.23 $ 17.12 $ 79.66 $ 82.69 $ 79.30 $ 72.89 $148.76 $ 54.32 $162.28 $ 2.47 $ 5.39 $129.68 $316.43 $ 53.88 $ 75.33 $193.36 $203.24 $183.41 $204.31 $184.18 $178.01 $182.74 $211.48 $ 8.38 $ 8.82 $ 9.49 $ 11.65 $385.92 $390.07 $375.64 $427.44 $ 53.77 $ 90.73 $112.15 $109.96 $ 129.04 $189.84 $ 2.88 $18.09 $ 18.77 $ 14.32 $ 8.56 $ 6.22 Current Portion of LT Debt Total Current Liabilities $ 56.65 $108.82 $130.92 $124.28 $137.60 $196.06 Long-term Debt Total Liabilities Shareholders' Equity $ 52.82 $185.45 $193.84 $161.98 $104.68 $ 79.80 $109.47 $294.27 $324.76 $286.26 $242.28 $275.86 $ 20.21 $ 22.16 $61.16 $103.81 $133.36 $151.58 Total Liabilities and Equities $129.68 $316.43 $385.92 $390.07 $375.64 $427.44 Appendix A3: Canadian Motorbikes Industry Averages Current Ratio 1.25 Cash Ratio 0.27 Inventory Turnover (days) 44.12 A/R Turnover (days) 32.45 A/P Turnover (days) 60.23 Cash Conversion Cycle 16.35 Fixed Assets Turnover 3.72 Total Assets Turnover 2.05 Debt Ratio 0.54 Times Interest Earned 9.33 Gross Profit Margin 32.00% Operating Profit Margin 14.00% Net Profit Margin 8.50% Return on Assets 17.46% Return on Equity 38.25%