2. Projected financial statements and basic analysis

You are the most creative analyst for Happy Horse Logistics, and your admirers want to see you work your analytical magic once more.

	This Years Actual Results	Next Years Initial Forecast
Net sales	$15,000,000	$17,700,000
Cost of goods sold	12,000,000	14,160,000
Gross profit	$3,000,000	$3,540,000
Fixed operating costs except depreciation	750,000	750,000
Depreciation	300,000	354,000
Earnings before interest and taxes	$1,950,000	$2,301,000
Interest	300,000	300,000
Earnings before taxes	$1,650,000	$2,001,000
Taxes	660,000	800,400
Net income	$990,000	1,200,600
Common dividends	534,600	534,600
Addition to retained earnings	$455,400	$666,000
Earnings per share	$0.20	$0.24
Dividends per share	$0.11	$0.11
Number of common shares (millions)	5.00	5.00

Which of the following are assumptions made by the initial income statement forecast? Check all that apply.

No excess capacity currently exists.

The cost of sales percentage for Happy Horse Logistics will decrease due to economies of scale.

Happy Horse Logistics will be issuing additional debt in the coming year.

Happy Horse Logistics will be issuing additional shares of common stock in the coming year.

Spontaneously generated funds will sufficiently cover any financing needs.

Suppose Happy Horse had neither sufficient excess capacity to handle any forecasted increases in operations nor sufficient retained earnings to increase the level of company asset up to the amount necessary for production. This deficiency is called (alternative fiduciary necessities, added fair needs, or additional funds needed).

These funds could be acquired in which of the following forms? Check all that apply.

Repayment of outstanding bonds

Repayment of notes payable

Issuing long-term bonds

Repurchase of outstanding common stock