3. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Avatar Animators Inc., and your admirers want to see you work your analytical magic once more. 2016 Actual Results 2017 Initial Forecast (748) Taxes Addition to retained earnings Gross profit Fixed operating costs except depreciation Earnings per share Interest Earnings before taxes Depreciation Dividends per share Number of common shares (millions) Net income Net sales Earnings before interest and taxes Cost of goods sold Common dividends $516 $3,400 (850) $56 (340) $1,870 (340) $30 (925) $781 $4,080 (1,020) $69 (340) $2,312 (408) $30 20.0 20.0 $1,122 $17,000 $2,210 (13,600) (606) 1,387 $20,400 $2,652 (16,320) (606) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. Avatar Animators Inc. will be issuing additional debt in the coming year. Avatar Animators Inc. will be issuing additional shares of common stock in the coming year. The forecasted increase in net sales is 20%. No excess capacity currently exists. The cost of sales percentage for Avatar Animators Inc. will decrease due to economies of scale. Spontaneously generated funds will sufficiently cover any financing needs. If Avatar Animators Inc. had neither a sufficient amount of excess capacity to handle forecasted increases in operations nor the level of retained earnings required to increase asset levels up to the necessary level for production, this difference would be referred to as and could be acquired in which of the following forms? I. Issuing additional common stock II. Borrowing from a bank using notes payable III. Issuing long-term bonds II and III I only Just II I, II, and III I and II Just III O 3. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Avatar Animators Inc., and your admirers want to see you work your analytical magic once more. 2016 Actual Results 2017 Initial Forecast (748) Taxes Addition to retained earnings Gross profit Fixed operating costs except depreciation Earnings per share Interest Earnings before taxes Depreciation Dividends per share Number of common shares (millions) Net income Net sales Earnings before interest and taxes Cost of goods sold Common dividends $516 $3,400 (850) $56 (340) $1,870 (340) $30 (925) $781 $4,080 (1,020) $69 (340) $2,312 (408) $30 20.0 20.0 $1,122 $17,000 $2,210 (13,600) (606) 1,387 $20,400 $2,652 (16,320) (606) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. Avatar Animators Inc. will be issuing additional debt in the coming year. Avatar Animators Inc. will be issuing additional shares of common stock in the coming year. The forecasted increase in net sales is 20%. No excess capacity currently exists. The cost of sales percentage for Avatar Animators Inc. will decrease due to economies of scale. Spontaneously generated funds will sufficiently cover any financing needs. If Avatar Animators Inc. had neither a sufficient amount of excess capacity to handle forecasted increases in operations nor the level of retained earnings required to increase asset levels up to the necessary level for production, this difference would be referred to as and could be acquired in which of the following forms? I. Issuing additional common stock II. Borrowing from a bank using notes payable III. Issuing long-term bonds II and III I only Just II I, II, and III I and II Just III O
