6. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Black Sheep Broadcasting Company, and your admirers want to see you work your analytical magic once more. 2016 Actual 2017 Initial Forecast Results Gross profit Fixed operating costs except depreciation Net sales Taxes Cost of goods sold Earnings before interest and taxes Addition to retained earnings Depreciation Earnings before taxes Net income $3,800 (950) $19,000 (836) (15,200) $2,470 $577 (380) $2,090 $1,254 $34 $63 20.0 (380) (677) $4,560 (1,140) $22,800 (1,034) (18,240) $2,964 $873 (456) $2,584 1,550 $34 $78 20.0 (380) (677) Dividends per share Earnings per share Number of common shares (millions) Interest Common dividends Which of the following are assumptions made by the initial income statement forecast? Check all that apply. D The forecasted increase in net sales is 20%. No excess capacity currently exists. Spontaneously generated funds will sufficiently cover any financing needs. Black Sheep Broadcasting Company will be issuing additional shares of common stock in the coming year. Black Sheep Broadcasting Company will be issuing additional debt in the coming year. The cost of sales percentage for Black Sheep Broadcasting Company will decrease due to economies of scale. Which of the following could be a direct cause of financing feedback? I. Issuing additional common stock II. Purchasing additional buildings with internally generated funds III. An unexpected increase in sales IV. Borrowing from the bank III and IV OI OIV II and IV I and IV I and II O III What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might: O Increase the length of the operating cycle Reduce the level of cash on hand Increase charges against net income, reducing the amount of available internally generated funds Spontaneously increase liabilities associated with the cost of goods sold O O