Below are the 2014 financial statements for Aquatic Supplies Co. Also appearing are managements forecasts for how individual financial statement items will vary in the
future. The company expects sales to grow 12% next year. Aquatic Supplies finances all of its needs with 10-year long-term debt at 10% interest, while excess cash at the end
of the year is added to the cash balance.
Prepare a spreadsheet to estimate Aquatic Supplies 's 2015 need for external funding assuming long-term debt and interest expense remain at their 2011 levels.
Modify your spreadsheet forecast in part (a) to capture the interdependence between the loan and interest expense. That is, switch your spreadsheet to "manual calculation"
and include the necessary loan and added interest expense in your forecast.
Is the required loan in part (b) equal to the required loan you calculated in part (a)? Why are they different?
Perform a sensitivity analysis of Aquatic Supplies Co.s external financing needs as determined in part (b). Assume sales grow at 17% instead of 12%. How much does the
bank loan increase as sales go from 12% to 17%?
Perform a scenario analysis on the companys projection as determined in part (b). Assume sales grow 20%, the cost of goods sold is 38% of sales, inventory falls from 5%
of sales to 3%, and accounts receivable fall from 13% of sales to 10%. What happens to the loan need in this scenario relative to your answer in part (b)?
Return now to the original assumptions and extend your projections in part (b) through 2019. Continue to assume that all external funding needs will be met with debt at 10%
interest and any excess cash will add to the companys cash balance. What are your projected values for long-term debt and cash and equivalents in 2019?
Perform a scenario analysis on your 5-year projection in part (f). Assume growth in sales is 10%, the cost of goods sold is 41% of sales, and selling, general and
administrative expenses are 50% of sales. What are your projected values for long-term debt and cash balance in 2019?
Aquatic Supplies Co.
Income Statement (in $ millions)
	2014	Assumptions
Sales	$ 582.762	12%	growth in sales
Cost of Goods Sold	240.828	39%	percentage of sales
Gross Profit	341.934
Selling, General, & Administrative Exp.	257.507	49%	percentage of sales
Operating Income Before Deprec.	84.427
Depreciation,Depletion,&Amortization	25.221	30%	percentage of net PP&E
Operating Profit	59.206
Interest Expense	16.430	initially constant
Pretax Income	42.776
Total Income Taxes	14.971	35%	percentage of earnings before taxes
Net income	$ 27.805
Balance Sheet (in $ millions)
ASSETS
Cash & Equivalents	$ 7.152	2%	minimum cash balance as % of sales
Account Receivable	70.538	13%	percentage of sales
Inventories	39.033	5%	percentage of sales
Prepaid Expenses	9.339	no change
Other Current Assets	27.076	6%	percentage of sales
Total Current Assets	153.138
Net Plant, Property & Equipment	81.648	15%	percentage of sales
Intangibles	9.415	no change
Other Assets	24.642	5%	percentage of sales
TOTAL ASSETS	$ 268.843
LIABILITIES
Accounts Payable	$ 36.951	6%	percentage of sales
Accrued Expenses	31.206	5%	percentage of sales
Other Current Liabilities	3.663	no change
Total Current Liabilities	71.820
Long Term Debt	157.720	initially constant
Accrued wages	21.418	3%	percentage of sales
Total Liabilities	250.958
EQUITY
Common Stock	1.702	no change
Capital Surplus	55.513	no change
Retained Earnings	118.729	no dividends paid so all income is retained
Less: Treasury Stock	158.059	no change
TOTAL EQUITY	17.885
TOTAL LIABILITIES & EQUITY	$ 268.843