ASSUMPTIONS

NOTE: You will use a combination of Proforma, Ratios, and Percent$-$of$-$Sales methods to create your forecasted financials.

$1.$ The Sharks gave you the $$1,000,000$ in funding you requested in exchange for $25\%$ ownership of your company$$s profits.

$2.$ All the following are complete by March $31,2023$: $1)$ your shark funding has been received, $2)$ new capital investments have been purchased and set up$,$ and $3)$ additional labor has been hired and trained.

$3.$ SELLING & ADMINISTRATIVE EXPENSE: Use a $3-$year average Percent$-$of$-$Sales to forecast S&A expenses. $($HINT: Find what percent S&A expense is for each of $2020-$$$224,900,2021-$$$270,500,$ and $2022-$$$363,700,$ and average the three results together. Use the resulting average S&A Percent$-$of$-$Sales to forecast S&A into the future.$)$

Sales $2020$ $$1,200,000,2021$ $$1,500,000,2022$ $$1,875,000$

Calculation: Calculate S&A as a Percentage of Sales for Each Year:

For $2020$: $$224,900$$$/1,200,000\backslash$times $100=18\mathrm{.}74\%,$ For $2021$: $$270,500/$$$1,500,000\backslash$times $100=18\mathrm{.}03\%,$For $2022$: $$363,700/$$$1,875,000\backslash$times $100=19\mathrm{.}39\%$

Sum up these Percentages:

Sum of Percentages$=$Percentage in $2020+$Percentage in $2021+$Percentage in $2022$

Calculate the Average: Average Percentage$=$Sum of Percentages$/3$

Calculation Results:$18\mathrm{.}74\%+18\mathrm{.}03\%+19\mathrm{.}39\%/3=16\mathrm{.}82\%$

Convert

$18\mathrm{.}74\%$ to a decimal$\mathrm{.}0\mathrm{.}1874$; $18\mathrm{.}03\%$ to a decimal $0\mathrm{.}1803$; $19\mathrm{.}39\%$ to a decimal. $0\mathrm{.}1939$

$0\mathrm{.}1874+0\mathrm{.}1803+0\mathrm{.}1939=\mathrm{.}5046=\mathrm{.}01682$x$100=16\mathrm{.}82\%$

$3$

$4.$ RENT EXPENSE: Rent expense is a fixed cost in the amount of $$15,000$ per year in $2020-2022,$ increasing to $$200,000$ per year in $2023.$

$5.$ DEPRECIATION EXPENSE: Depreciation expense is a fixed cost of $10\%$ of Plant and equipment each year.

$6.$ INTEREST EXPENSE: This is a Fixed cost and is $10\%$ of Long$-$term Liabilities.

$7.$ TAXES: Because you live in a business$-$friendly State $($Wyoming$),$ you don$$t have to pay state taxes on your LLC$$s income. You do$,$ however, still have to pay Federal taxes. Also $2022,$ higher tax rates were passed for the $2023$ tax year, pushing income over $$400,000$ into the $39\mathrm{.}6\%$ tax bracket. Because of this, use $36\%$ as your effective tax rate. $($NOTE: If the taxes for $2020-2022$ seem high, it$$s because you had income from another job that threw your LLC income into a slightly higher tax bracket. However, you$$ll quit that job IF the sharks fund you!$)$

$8.$ SHARES: Issued $26,000$ $$1-$par shares to the sharks for a $25\%$ ownership stake.

$9.$ CASH: Increases to $$50,000$ in $2023$ and stays at that level.

$10.$ MARKETABLE SECURITIES: Plan to keep Marketable Securities at $60\%$ of Cash levels.

$11.$ ACCOUNTS RECEIVABLE: Use a $3-$year average Receivables Turnover ratio to forecast. $($HINT: Find the formula for Receivables Turnover $($RTO$)$ in your Week $2$ Chapter readings, and solve for RTO for each of $2020,2021,$ and $2022.$ Average the $3$ results together. Plug your Average RTO into the RTO formula for each future year and your other known number from your financial statements to find your forecasted Accounts Receivable amounts. This is demonstrated in your Week $2$ Lesson!$)$

$12.$ INVENTORY: Compute a $3-$year inventory average as a percentage of sales and then use that figure to forecast inventory levels through $2027.$

$13.$ PLANT & EQUIPMENT: There is a new capital expenditure of $750,000$ dollars in $2023,$ paid for from the $$1$M in funding from the sharks rather than with new debt. $($All capital expenditures are assumed to occur on January $1$st of the year of purchase, and no equipment is sold or salvaged during the forecasted period.$)$

$14.$ ACCUMULATED DEPRECIATION: Each year, $10\%$ of the total amount of Plant and Equipment is added to the depreciation amount.

$15.$ ACCOUNTS PAYABLE: Use the $3-$year average Current Ratio to forecast. $($HINT: The Current Ratio will help you forecast TOTAL Current Liabilities, not Accounts Payable. Find Total Current Liabilities and Accrued Expenses first, and then you can solve for Accounts Payable.$)$

$16.$ ACCRUED EXPENSES: Use the $3-$year average Percent$-$of$-$Sales method to forecast.

$17.$ LONG$-$TERM LIABILITIES: Pay down $$100,000$ of old debt annually starting in $2023.$

$18.$ COMMON STOCK $($$$1$ Par$)$: Increase by the dollar value of shares issued to sharks $(26,000$ shares at $$1$ par$).$

$19.$ CAPITAL PAID more than PAR: The shark's full investment of $$1$M must be reflected on the Balance Sheet. The stock received by the shark, worth $$26,000($at a Par value of $$1$ per share$),$ is already reflected under Common Stock. The rest of the shark's investment value is added to this account.

$20.$ RETAINED EARNINGS: This amount is whatever it takes to make the Balance Sheet balance! $($HINT: Remember, total liabilities $+$ Shareholders' equity equals total assets. Once Total L $+$ SE is determined, Total SE can be solved. Finally, once Total SE is solved, Retained Earnings can be solved$).$

$21.$ DIVIDENDS: You do not pay dividends now and do not plan to while in a growth stage.