All the calculations are done in the following excel workbook, can someone please double check my work, and also can you please provide a detailed explanation using numbers for the short answer part? The short answer is this: Evaluate the reasonableness of the projected financial statements using supplemental ratios you computed in the following workbook tab and the model for sustainable growth and summarize your recommendations to management regarding its stated or implied financing strategy and policies.Limit the length of your response to 125 words.

Instructions: Using the information provided below, complete the projected financial statements in the following tab in this MS Excel Workbook: The background paper, Projected Financial Statements and Financing Requirements , provides necessary guidance for this assignment. Evaluate the reasonableness of the projected financial statements using supplemental ratios you computed in the following workbook tab and the for sustainable growth and summarize your recommendations to management regarding its stated or implied financing strategy and policies. Lim length of your response to 125 words. The illustrative projected SCF above indicates managers' plans to finance the company's projected net investment cash outflows, totaling about $17.7 million with projected operating cash inflows (OCF) of about $17.1 million. In addition, t company will pay dividends on its common stock totaling about $1.2 million while projecting net additional borrowings its bank loan agreement of less than $2.0 million. This relatively modest projected increase in bank notes payable is cons with managers' previously adopted plan to reduce the company's total financial leverage (as measured by the total debt ra Managers' assumptions and methods to be used in preparing the projected fiscal year (FY) 20X6 financial statements: 1. Managers separately prepared a projection indicating that FY 20X6 sales will be $108,000,000. 2. Projected FY 20X6 depreciation expense for manufacturing PP&E, based on existing depreciation schedules of PP&E held at FYE 20X5 plus es planned 20X6during PP&Ethe purchases, is $13,840,000. 3. depreciation The averageofgross margin 20X1-20X5 period is used to project FY 20X6 gross profit. 4. Projected FY 20X6 depreciation expense for non-manufacturing PP&E, based on existing depreciation schedules of PP&E held at FYE 20X5, pl depreciation ofother planned 20X6 PP&Eduring purchases, is $660,000. 5. estimated The average ratio of "all S&A-to-sales" the 20X1-20X5 period is used to project FY 20X6 "all other S&A." 6. Projected FY 20X6 R&D expense, $3,650,000, is based on a tentative proposal, developed in connection with the company's long-term strategic 7. The average annual amount of "other operating expense" during the 20X1-20X5 period is used to project the FY 20X6 amount. 8. Projected FY 20X6 interest expense is based on the average interest rate on existing loans, 8.0 percent, and the projected average balance of $31,250,000. 9. outstanding, Managers expect the company to incur a loss on disposal of existing PP&E of about $80,000, based on a tentative capital budget for 20X6. 10. The projected combined effective income tax rate in FY 20X6 is 0.40 (40.0 percent). 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. The projected FY 20X6 balance of cash and cash equivalents is determined according to the method described in the background paper. The company's working capital management requires managers to maintain and cash equivalents between $500,000 and $7 The average collection period during thepolicy 20X1-20X5 period, 45 days, is usedatobalance project of thecash FY 20X6 balance of accounts receivable (AR). The average days to sell inventory ratio during the 20X1-20X5 period, 60 days, is used to project the FY 20X6 balance of inventory. The projected FY 20X6 balance of total current assets is determined according to the method described in the background paper. The company's working capital management policy requires managers to maintain a current (working capital) ratio of about 1.0. The projected 20X6 balance of property, plant, and equipment (PP&E) is determined using projected net acquisitions of $12,960,000, obtained tentative capital20X6 budget. The projected balance of accumulated depreciation (AD) is determined using projected depreciation expense of manufacturing and nonmanufacturing PP&E and AD ofassets PP&E management tentativelyperiod expects dispose of basis in 20X6, $5,540,000. The average balance of other during the 20X1-20X5 is atoreasonable for projecting the 20X6 balance. The projected 20X6 balance of total assets is determined according to the method described in the background paper. The average payment period of "cash costs" during the 20X1-20X5 period, 40 days, is used to project the FY 20X6 balance of accounts payabl "Cash costs" isFY defined the background paper. The projected 20X6 in balance of accrued income taxes payable is determined using the projected provision for income taxes and the avera ratio accruedFY income payable-to-provision for income taxes during the 20X1-20X5 period, 0.25to(25.0 percent). The of projected 20X6 taxes balance of dividends payable is equal to dividends that the company expects declare during the final week of 20X6, b on net income for year, and pay earlynotes in FY 20X7. The company's long-standing payoutwhich ratio (dividend policy) (40 (working percent).capital) rat The projected FY that 20X6 balance of bank payable - current portion is $15,171,000, is consistent withisa0.40 current about 1.0, as the company's working capital management policy requires. The projected FY 20X6 balance of accrued interest payable is based on projected annual interest expense and the terms of loan agreements, require the company to pay interest (accrued using a 360-day year) quarterly, at the beginning fiscal quarter. The projected FY 20X6 balance of bank notes payable - noncurrent is determined accordingoftoeach the method described in the background paper The projected FY 20X6 balance of total liabilities (i.e., targeted total liabilities) is determined according to the method described in the backgro paper. Management has made no plan to issue (or repurchase) shares of the company's common stock during FY 20X6. The projected FY 20X6 balance of retained earnings (RE) is determined using projected 20X6 net income and projected dividends to be decla based on projected net income to the company's dividend policy, indicated above).according to the method described in the background The projected FY 20X6 balance(according of total liabilities and stockholders' equity is determined The targeted total debt ratio is 1.20 (120 percent). 30. Projected FY 20X6 net acquisitions (disposals or maturities) of investment securities and other assets are computed using the projected and F 31. balance Projected FY 20X6 net acquisitions of PP&E is computed as: sheets. Projected FY 20X6 balance of net PP&E Add projected FY 20X6 depreciation of manufacturing PP&E Add projected FY 20X6 depreciation of non-manufacturing PP&E Add projected FY 20X6 loss (or deduct projected FY 20X6 gain) on disposal of PPE Less beginning-of-year balance of net PP&E 32. Projected FY 20X6 payment of dividends on common stock is based on dividends declared during the final week of the preceding FY. The facilitator will grade this assignment, assigning up to 100 points for it as follows: Accuracy, completeness, and clear presentation of: - Projected financial statements, including related information input and computations (formulas) - Supplemental ratios and projected amount of additional external funds needed, including related information input and computations (formulas) - Conclusions regarding reasonableness of projected financial statements and related recommendations to management Total points Maximum Earned 75 75 points 10 10 15 15 100 100 tements in the following tab in this MS Excel Workbook: d Financing Requirements, provides necessary guidance for this ng supplemental ratios you computed in the following workbook tab and the model agement regarding its stated or implied financing strategy and policies. Limit the plans to finance the company's projected net investment cash ating cash inflows (OCF) of about $17.1 million. In addition, the about $1.2 million while projecting net additional borrowings under atively modest projected increase in bank notes payable is consistent pany's total financial leverage (as measured by the total debt ratio). jected fiscal year (FY) 20X6 financial statements: ales will be $108,000,000. ased on existing depreciation schedules of PP&E held at FYE 20X5 plus estimated project FY 20X6 gross profit. &E, based on existing depreciation schedules of PP&E held at FYE 20X5, plus 0. eriod is used to project FY 20X6 "all other S&A." e proposal, developed in connection with the company's long-term strategic plan. e 20X1-20X5 period is used to project the FY 20X6 amount. t rate on existing loans, 8.0 percent, and the projected average balance of loans g PP&E of about $80,000, based on a tentative capital budget for 20X6. (40.0 percent). ermined according to the method described in the background paper. The maintain and cash equivalents between $500,000 and $750,000. , is usedatobalance project of thecash FY 20X6 balance of accounts receivable (AR). , 60 days, is used to project the FY 20X6 balance of inventory. d according to the method described in the background paper. s to maintain a current (working capital) ratio of about 1.0. &E) is determined using projected net acquisitions of $12,960,000, obtained from a etermined using projected depreciation expense of manufacturing and nondispose of basis in 20X6, $5,540,000. ssatoreasonable for projecting the 20X6 balance. o the method described in the background paper. eriod, 40 days, is used to project the FY 20X6 balance of accounts payable (AP). s determined using the projected provision for income taxes and the average uring 20X1-20X5 period, 0.25to(25.0 percent). dendsthe that the company expects declare during the final week of 20X6, based long-standing payoutwhich ratio (dividend policy) (40 (working percent).capital) ratio of rtion is $15,171,000, is consistent withisa0.40 current es. d on projected annual interest expense and the terms of loan agreements, which at the beginning fiscal quarter. tarterly, is determined accordingoftoeach the method described in the background paper. liabilities) is determined according to the method described in the background e company's common stock during FY 20X6. ned using projected 20X6 net income and projected dividends to be declared policy, indicated above).according to the method described in the background paper. ' equity is determined ment securities and other assets are computed using the projected and FY 20X5 disposal of PPE d on dividends declared during the final week of the preceding FY. Superior Products Company Fiscal year income statements Actual (historical) 20X1 (A) Sales revenue 20X2 20X3 Projected 20X4 20X5 20X6 ### ### ### ### ### $108,000,000 Less Cost of goods sold: (B) Depreciation of manufacturing PP&E ### ### ### ### ### 13,840,000 (C) All other cost of goods sold ### ### ### ### ### 66,620,000 (D) Total cost of goods sold (COGS) ### ### ### ### ### 80,460,000 (E) Gross profit (F) Gross margin (gross profit divide sales revenue) ### ### ### ### 25.6% 24.2% 25.2% 26.3% ### $ 27,540,000 26.2% 25.5% Operating expenses: Selling and administrative expenses: (G) Depreciation of non-manufacturing PP&E (H) All other S&A expenses (I) Research and development (R&D) expenses (J) Other operating expenses (K) Total operating expenses (L) Operating income $390,000 ### ### 220,000 430,000 ### ### 270,000 460,000 ### ### 340,000 530,000 ### ### 70,000 600,000 $ 660,000 ### 14,850,000 ### 3,650,000 100,000 108,000 ### ### ### ### ### 19,268,000 ### ### ### ### ### 8,272,000 ### (2,811,152) Add (less) Non-operating items: (M) Interest on debt (N) Interest and dividends on short-term investments 30,000 ### 20,000 ### 20,000 ### 20,000 ### 20,000 (O) Gain (loss) on disposal of PP&E 10,000 (80,000) 30,000 20,000 (90,000) (10,000) (P) Income before income taxes ### ### ### ### ### 5,400,848 (80,000) (Q) Less Provision for income taxes ### ### ### ### ### 2,160,339 (R) Net income ### ### ### ### ### $ 3,240,509 Superior Products Company Fiscal year balance sheets Actual (historical) Assets: 20X1 20X2 20X3 Projected 20X4 20X5 20X6 Current assets: (A) Cash and cash equivalents (B) Investment securities available for sale $450,000 590,000 630,000 640,000 760,000 800,000 400,000 500,000 500,000 400,000 $ 750,000 10,692,271 (C) Accounts receivable ### ### ### ### ### 13,500,000 (D) Inventory ### ### ### ### ### 13,410,000 (E) Total current assets ### ### ### ### ### 38,352,271 1.0 1.0 1.0 1.0 1.0 (F) Property, plant, and equipment, at cost ### ### ### ### ### 112,810,000 (G) Less Accumulated depreciation ### ### ### ### ### 69,890,000 ### 42,920,000 Current ratio (working capital) ratio (H) Property, plant, and equipment, net (I) Other assets (J) Total assets ### 230,000 ### 190,000 ### 310,000 ### 240,000 280,000 300,000 ### ### ### ### ### $ 81,572,271 ### ### ### ### ### $ Liabilities: Current liabilities: (K) Accounts payable (L) Accrued income taxes payable (M) Dividends payable on common stock (N) Bank notes payable - current portion (O) Accrued interest payable 500,000 ### ### 420,000 360,000 860,000 ### 490,000 440,000 ### ### 520,000 580,000 ### ### 540,000 550,000 $ 7,402,222 540,085 ### 1,296,203 ### 19,102,643 570,000 702,813 (P) Total current liabilities ### ### ### ### ### 29,043,966 (Q) Bank notes payable - noncurrent portion ### ### ### ### ### 15,450,000 ### 44,493,966 (R) Total liabilities Total debt ratio (ratio of total liabilities to total equity) ### 1.15 ### 1.18 ### 1.17 ### 1.14 1.17 1.20 Stockholders' equity: (S) Common stock, at par ### ### ### ### ### 16,000,000 (T) Additional paid-in capital ### ### ### ### ### 4,014,000 (U) Retained earnings ### ### ### ### ### 17,064,305 (V) Total stockholders' equity ### ### ### ### ### 37,078,305 (W) Total liabilities and stockholders' equity ### ### ### ### ### $ 81,572,271 Superior Products Company Fiscal year statements of cash flows Actual (historical) Operating cash flows OCF) (A) Net income 20X2 20X3 ### 20X4 ### Projected 20X5 ### 20X6 ### $ 3,240,509 Adjustments to reconcile net income to OCF (B) Depreciation of manufacturing PP&E (C) Depreciation of non-manufacturing PP&E (D) Loss (gain) on disposal of PP&E ### 430,000 80,000 ### 460,000 (30,000) ### ### 13,840,000 530,000 600,000 660,000 90,000 10,000 80,000 Changes in working capital accounts: (E) Decrease (increase) in accounts receivable (620,000) (500,000) (630,000) (870,000) (1,000,000) (F) Decrease (increase) in inventory (820,000) (350,000) (450,000) (880,000) (1,110,000) (G) Increase (decrease) in accounts payable (H) Increase (decrease) in accrued inc. taxes payable (I) Increase (decrease) in accrued interest payable (J) Net cash provided by (used in) operating activities 570,000 (140,000) 70,000 ### 310,000 330,000 700,000 80,000 140,000 (30,000) 30,000 20,000 ### ### 1,307,778 9,915 30,000 132,813 ### 17,161,015 Cash flows from investing activities: (K) Net (acquisitions) disposals or maturities of investment securities (L) Net acquisitions of PP&E (M) Net (acquisitions) disposals of other assets (N) Net cash provided by (used in) investing activities 400,000 ### 40,000 ### (100,000) ### (120,000) ### ### 70,000 ### 100,000 (10,292,271) ### (7,420,000) (40,000) - ### (17,712,271) Cash flows from financing activities: (O) Net proceeds from issuances (repurchases) of common stock - - (P) Payment of dividends on common stock ### (860,000) (Q) Net proceeds from (repayments of) bank notes payable ### 930,000 (R) Net cash provided by (used in) financing activities ### 70,000 (S) Net increase (decrease) in cash and cash equivalents (T) Cash and cash equivalents at beginning of FY (U) Cash and cash equivalents at end of FY ### - - ### (1,320,000) 620,000 ### 1,881,256 (430,000) ### 561,256 140,000 40,000 10,000 120,000 450,000 590,000 630,000 640,000 $590,000 630,000 640,000 760,000 10,000 760,000 $ 770,000 Superior Products Company Fiscal year supplemental financial information Actual (historical) 20X1 20X2 20X3 Projected 20X4 20X5 20X6 (A) Times interest earned (TIE) (interest coverage) ratio 3.9 2.8 3.1 3.7 (B) Earnings before interest and income taxes (EBIT) ### ### ### ### ### $ 8,272,000 (C) Interest expense, net of any interest income ### ### ### ### ### $ 2,811,152 7.4% 8.7% 10.8% ### ### ### (D) Return on average common equity (ROCE) ratio NA (E) Net income (F) Dividends on preferred stock - (G) Income available to common stockholders (H) Total stockholders' equity, beginning of FY NA - - 3.4 2.9 9.7% 9.0% ### $ 3,240,509 - - ### ### ### ### 3,240,509 ### ### ### ### 35,134,000 (I) Total stockholders' equity, end of FY ### ### ### ### 37,078,305 (J) Average total stockholders' equity ### ### ### ### $ 36,106,153 $ - (K) Additional external funds needed (EFN) based on projected financial statements (L) Sustainable growth rate of sales (A) Minimum TIE (interest coverage) ratio set forth in company's loan agreement (financial covenants) is 3.0 (D) Current estimate of company's cost of equity capital, rE is 9.95 (9.95 percent), computed as rE = rF + x (rM - rF) = 0.04 + 0.7 x (0.125 - 0.04) (F) The company has no preferred stock outstanding. 108.0% Instructions: Using the information provided below, complete the projected financial statements in the following tab in this MS Excel Workbook: The background paper, Projected Financial Statements and Financing Requirements , provides necessary guidance for this assignment. Evaluate the reasonableness of the projected financial statements using supplemental ratios you computed in the following workbook tab and the for sustainable growth and summarize your recommendations to management regarding its stated or implied financing strategy and policies. Lim length of your response to 125 words. Replace the text in this cell with your response. Managers' assumptions and methods to be used in preparing the projected fiscal year (FY) 20X6 financial statements: 1. Managers separately prepared a projection indicating that FY 20X6 sales will be $108,000,000. 2. Projected FY 20X6 depreciation expense for manufacturing PP&E, based on existing depreciation schedules of PP&E held at FYE 20X5 plus estimated depreciation of planned 20X6 PP&E purchases, is $13,840,000. 3. The average gross margin during the 20X1-20X5 period is used to project FY 20X6 gross profit. 4. Projected FY 20X6 depreciation expense for non-manufacturing PP&E, based on existing depreciation schedules of PP&E held at FYE 20X5, pl estimated depreciation of planned 20X6 PP&E purchases, is $660,000. 5. The average ratio of "all other S&A-to-sales" during the 20X1-20X5 period is used to project FY 20X6 "all other S&A." 6. Projected FY 20X6 R&D expense, $3,650,000, is based on a tentative proposal, developed in connection with the company's long-term strategic 7. The average annual amount of "other operating expense" during the 20X1-20X5 period is used to project the FY 20X6 amount. 8. Projected FY 20X6 interest expense is based on the average interest rate on existing loans, 8.0 percent, and the projected average balance of outstanding, $31,250,000. 9. Managers expect the company to incur a loss on disposal of existing PP&E of about $80,000, based on a tentative capital budget for 20X6. 10. The projected combined effective income tax rate in FY 20X6 is 0.40 (40.0 percent). 11. The projected FY 20X6 balance of cash and cash equivalents is determined according to the method described in the background paper. The company's working capital management policy requires managers to maintain a balance of cash and cash equivalents between $500,000 and $750,000. 12. The average collection period during the 20X1-20X5 period, 45 days, is used to project the FY 20X6 balance of accounts receivable (AR). 13. The average days to sell inventory ratio during the 20X1-20X5 period, 60 days, is used to project the FY 20X6 balance of inventory. 14. The projected FY 20X6 balance of total current assets is determined according to the method described in the background paper. 15. The company's working capital management policy requires managers to maintain a current (working capital) ratio of about 1.0. 16. The projected 20X6 balance of property, plant, and equipment (PP&E) is determined using projected net acquisitions of $12,960,000, obtained tentative capital budget. 17. The projected 20X6 balance of accumulated depreciation (AD) is determined using projected depreciation expense of manufacturing and nonmanufacturing PP&E and AD of PP&E management tentatively expects to dispose of in 20X6, $5,540,000. 18. The average balance of other assets during the 20X1-20X5 period is a reasonable basis for projecting the 20X6 balance. 19. The projected 20X6 balance of total assets is determined according to the method described in the background paper. 20. The average payment period of "cash costs" during the 20X1-20X5 period, 40 days, is used to project the FY 20X6 balance of accounts payabl "Cash costs" is defined in the background paper. 21. The projected FY 20X6 balance of accrued income taxes payable is determined using the projected provision for income taxes and the avera ratio of accrued income taxes payable-to-provision for income taxes during the 20X1-20X5 period, 0.25 (25.0 percent). 22. The projected FY 20X6 balance of dividends payable is equal to dividends that the company expects to declare during the final week of 20X6, b on net income for that year, and pay early in FY 20X7. The company's long-standing payout ratio (dividend policy) is 0.40 (40 percent). 23. The projected FY 20X6 balance of bank notes payable - current portion is $15,171,000, which is consistent with a current (working capital) rat about 1.0, as the company's working capital management policy requires. 24. The projected FY 20X6 balance of accrued interest payable is based on projected annual interest expense and the terms of loan agreements, require the company to pay interest (accrued using a 360-day year) quarterly, at the beginning of each fiscal quarter. 25. The projected FY 20X6 balance of bank notes payable - noncurrent is determined according to the method described in the background paper 26. The projected FY 20X6 balance of total liabilities (i.e., targeted total liabilities) is determined according to the method described in the backgro paper. 27. Management has made no plan to issue (or repuchase) shares of the company's common stock during FY 20X6. 28. The projected FY 20X6 balance of retained earnings (RE) is determined using projected 20X6 net income and projected dividends to be decla based on projected net income (according to the company's dividend policy, indicated above). 29. The projected FY 20X6 balance of total liabilities and stockholders' equity is determined according to the method described in the background The targeted total debt ratio is 1.20 (120 percent). 30. Projected FY 20X6 net acquisitions (disposals or maturities) of investment securities and other assets are computed using the projected and F balance sheets. 31. Projected FY 20X6 net acquisitions of PP&E is computed as: Projected FY 20X6 balance of net PP&E Add projected FY 20X6 depreciation of manufacturing PP&E Add projected FY 20X6 depreciation of non-manufacturing PP&E Add projected FY 20X6 loss (or deduct projected FY 20X6 gain) on disposal of PPE Less beginning-of-year balance of net PP&E 32. Projected FY 20X6 payment of dividends on common stock is based on dividends declared during the final week of the preceding FY. The facilitator will grade this assignment, assigning up to 100 points for it as follows: Maximum Earned Accuracy, completeness, and clear presentation of: - Projected financial statements, including related information input and computations (formulas) 75 75 points 10 10 15 15 100 - Supplemental ratios and projected amount of additional external funds needed, including related information input and computations (formulas) - Conclusions regarding reasonableness of projected financial statements and related recommendations to management Total points 100 tements in the following tab in this MS Excel Workbook: d Financing Requirements, provides necessary guidance for this ng supplemental ratios you computed in the following workbook tab and the model agement regarding its stated or implied financing strategy and policies. Limit the jected fiscal year (FY) 20X6 financial statements: ales will be $108,000,000. ased on existing depreciation schedules of PP&E held at FYE 20X5 plus 000. project FY 20X6 gross profit. &E, based on existing depreciation schedules of PP&E held at FYE 20X5, plus 0. eriod is used to project FY 20X6 "all other S&A." e proposal, developed in connection with the company's long-term strategic plan. e 20X1-20X5 period is used to project the FY 20X6 amount. t rate on existing loans, 8.0 percent, and the projected average balance of loans g PP&E of about $80,000, based on a tentative capital budget for 20X6. (40.0 percent). ermined according to the method described in the background paper. The maintain a balance of cash and cash equivalents between $500,000 and , is used to project the FY 20X6 balance of accounts receivable (AR). , 60 days, is used to project the FY 20X6 balance of inventory. d according to the method described in the background paper. s to maintain a current (working capital) ratio of about 1.0. &E) is determined using projected net acquisitions of $12,960,000, obtained from a etermined using projected depreciation expense of manufacturing and nons to dispose of in 20X6, $5,540,000. s a reasonable basis for projecting the 20X6 balance. o the method described in the background paper. eriod, 40 days, is used to project the FY 20X6 balance of accounts payable (AP). s determined using the projected provision for income taxes and the average uring the 20X1-20X5 period, 0.25 (25.0 percent). dends that the company expects to declare during the final week of 20X6, based long-standing payout ratio (dividend policy) is 0.40 (40 percent). rtion is $15,171,000, which is consistent with a current (working capital) ratio of es. d on projected annual interest expense and the terms of loan agreements, which arterly, at the beginning of each fiscal quarter. t is determined according to the method described in the background paper. liabilities) is determined according to the method described in the background company's common stock during FY 20X6. ned using projected 20X6 net income and projected dividends to be declared policy, indicated above). ' equity is determined according to the method described in the background paper. ment securities and other assets are computed using the projected and FY 20X5 disposal of PPE d on dividends declared during the final week of the preceding FY. Superior Products Company Fiscal year income statements Actual (historical) 20X1 (A) Sales revenue 20X2 20X3 Projected 20X4 20X5 20X6 ### ### ### ### ### ### Less Cost of goods sold: (B) Depreciation of manufacturing PP&E ### ### ### ### ### ### (C) All other cost of goods sold ### ### ### ### ### ### (D) Total cost of goods sold (COGS) ### ### ### ### ### ### (E) Gross profit (F) Gross margin (gross profit divide sales revenue) ### ### ### ### ### ### 25.6% 24.2% 25.2% 26.3% 26.2% 25.5% Operating expenses: Selling and administrative expenses: (G) Depreciation of non-manufacturing PP&E (H) All other S&A expenses (I) Research and development (R&D) expenses (J) Other operating expenses (K) Total operating expenses (L) Operating income $390,000 ### ### 220,000 430,000 ### ### 270,000 460,000 ### ### 340,000 530,000 ### ### 70,000 600,000 ### ### 100,000 ### ### ### 108,000 ### ### ### ### ### ### ### ### ### ### ### ### Add (less) Non-operating items: (M) Interest on debt (N) Interest and dividends on short-term investments 30,000 ### 20,000 ### 20,000 ### 20,000 ### 20,000 ### 20,000 ### (O) Gain (loss) on disposal of PP&E 10,000 (80,000) 30,000 (90,000) (10,000) (80,000) (P) Income before income taxes ### ### ### ### ### ### (Q) Less Provision for income taxes ### ### ### ### ### ### (R) Net income ### ### ### ### ### ### Superior Products Company Fiscal year balance sheets Actual (historical) 20X1 Assets: 20X2 20X3 Projected 20X4 20X5 20X6 Current assets: (A) Cash and cash equivalents (B) Investment securities available for sale $450,000 590,000 630,000 640,000 760,000 ### 800,000 400,000 500,000 500,000 400,000 ### (C) Accounts receivable ### ### ### ### ### ### (D) Inventory ### ### ### ### ### ### (E) Total current assets ### ### ### ### ### ### 1.0 1.0 1.0 1.0 1.0 (F) Property, plant, and equipment, at cost ### ### ### ### ### ### (G) Less Accumulated depreciation ### ### ### ### ### ### Current ratio (working capital) ratio (H) Property, plant, and equipment, net (I) Other assets ### 230,000 (J) Total assets ### 190,000 ### 310,000 ### 240,000 ### 280,000 ### 300,000 ### ### ### ### ### ### ### ### ### ### ### ### Liabilities: Current liabilities: (K) Accounts payable (L) Accrued income taxes payable 500,000 (M) Dividends payable on common stock ### (N) Bank notes payable - current portion (O) Accrued interest payable ### 420,000 360,000 860,000 ### 490,000 440,000 ### ### 520,000 580,000 ### ### 540,000 550,000 ### ### 570,000 ### ### ### 702,813 (P) Total current liabilities ### ### ### ### ### ### (Q) Bank notes payable - noncurrent portion ### ### ### ### ### ### (R) Total liabilities Total debt ratio (ratio of total liabilities to total equity) ### 1.15 ### 1.18 ### 1.17 ### 1.14 ### 1.17 ### 1.20 Stockholders' equity: (S) Common stock, at par ### ### ### ### ### ### (T) Additional paid-in capital ### ### ### ### ### ### (U) Retained earnings ### ### ### ### ### ### (V) Total stockholders' equity ### ### ### ### ### ### (W) Total liabilities and stockholders' equity ### ### ### ### ### ### Superior Products Company Fiscal year statements of cash flows Actual (historical) Operating cash flows OCF) (A) Net income 20X2 20X3 ### 20X4 ### Projected 20X5 ### 20X6 ### ### Adjustments to reconcile net income to OCF (B) Depreciation of manufacturing PP&E (C) Depreciation of non-manufacturing PP&E (D) Loss (gain) on disposal of PP&E ### 430,000 80,000 ### 460,000 (30,000) ### ### ### 530,000 600,000 660,000 90,000 10,000 80,000 Changes in working capital accounts: (E) Decrease (increase) in accounts receivable (620,000) (500,000) (630,000) (870,000) ### (F) Decrease (increase) in inventory (820,000) (350,000) (450,000) (880,000) ### (G) Increase (decrease) in accounts payable (H) Increase (decrease) in accrued inc. taxes payable (I) Increase (decrease) in accrued interest payable (J) Net cash provided by (used in) operating activities 570,000 (140,000) 70,000 ### 310,000 330,000 700,000 80,000 140,000 (30,000) 30,000 20,000 ### ### 30,000 ### ### 9,915 132,813 ### Cash flows from investing activities: (K) Net (acquisitions) disposals or maturities of investment securities (L) Net acquisitions of PP&E (M) Net (acquisitions) disposals of other assets (N) Net cash provided by (used in) investing activities 400,000 ### 40,000 ### (100,000) ### (120,000) ### ### 70,000 ### 100,000 ### (40,000) ### ### ### ### Cash flows from financing activities: (O) Net proceeds from issuances (repurchases) of common stock - - (P) Payment of dividends on common stock ### (860,000) (Q) Net proceeds from (repayments of) bank notes payable ### 930,000 (R) Net cash provided by (used in) financing activities ### 70,000 (S) Net increase (decrease) in cash and cash equivalents (T) Cash and cash equivalents at beginning of FY (U) Cash and cash equivalents at end of FY ### ### 620,000 ### (430,000) ### ### ### 561,256 140,000 40,000 10,000 120,000 10,000 450,000 590,000 630,000 640,000 760,000 $590,000 630,000 640,000 760,000 ### Superior Products Company Fiscal year supplemental financial information Actual (historical) 20X1 20X2 20X3 Projected 20X4 20X5 20X6 (A) Times interest earned (TIE) (interest coverage) ratio 3.9 2.8 3.1 3.7 3.4 2.9 (B) Earnings before interest and income taxes (EBIT) ### ### ### ### ### ### (C) Interest expense, net of any interest income ### ### ### ### ### ### 7.4% 8.7% 10.8% 9.7% 9.0% ### ### ### ### ### (D) Return on average common equity (ROCE) ratio NA (E) Net income (F) Dividends on preferred stock - (G) Income available to common stockholders (H) Total stockholders' equity, beginning of FY NA - - - - ### ### ### ### 3,240,509 ### ### ### ### ### (I) Total stockholders' equity, end of FY ### ### ### ### ### (J) Average total stockholders' equity ### ### ### ### ### (K) Additional external funds needed (EFN) based on projected financial statements (L) Sustainable growth rate of sales $ 108.0% (A) Minimum TIE (interest coverage) ratio set forth in company's loan agreement (financial covenants) is 3.0 (D) Current estimate of company's cost of equity capital, rE is 9.95 (9.95 percent), computed as rE = rF + x (rM - rF) = 0.04 + 0.7 x (0.125 - 0.04) (F) The company has no preferred stock outstanding