c. What are the limitations of the percent-of-sales forecasting method? Discuss briefly. 17-7. Forecasting discretionary financing needs and growth) Related to Checkpoint 17.1 on page 594) The most recent balance sheet for the AL R Distribution Company is shown in the followieg table. The company is about to 11 ark on an advertising campaign that is expected to raise sales from the cu sent leS5 million to $7 million by the end of next year. It is currently operating at fu, capacity and will have to increase irs inves ment in both current and fixed issets t oport the projected level of new sales, in fact, the company estimates that be a ategories of assets will rise in direct pi ortion to the projected increase in sals ADB Distribution Co.npany, Inc Balance Sheet (S millions) Percentage Projected of Sales Present Level Present Level Level Current assets $2.0 3.0 $5.0 Net fixed assets Total assets Liabilities and owners' equity So.s 0.5 Accounts payable Accrued expenses Notes payable Total current liabilities $1.0 $2.0 50.5 1.5 $2.0 Total liabilituies and owners' equity $50 Long-term debt Common stock Retained earnings Total common equity liabilities and owners equity The firm's net profits were 6 percent of current year's sales but are expected to rise to 7 percent of next year's sales. To help support its anticipated growth in asset needs next year, the firm has suspended plans to pay cash dividends to its stockholders. In past years. a $1.50 per share disidend w as paid annually 1,690,000 D00 1,201l 2 ovo 2.20 000 lo x Saleslo 3,601,692 CHAPTER 17 | Financial Forecasting and Planning 601 7-7. What would be the probable effect of each of the :ollowing on a firm's cash position? a. A new advertising campaign that results in more rapidly rising sales. b. A delay in the payment of the firm's accounis payable c. A decision to offer a more liberal credit policy (to the firm's customers . d. A decision to hold larger inventories in an attempt to reduce the probability of being out of stock