CHAPTER 14 PROBLEMS Short-Term Financial Planning PROBLEM 14-1 FINANCIAL FORECASTING % of sales DATA 12/31/2018 12/31/2019 Sales 18,400,000 21,160,000 Net profit 552,000 3% 634,800 Balance sheet 12/31/2018 % of sales 12/31/2019 Asset Current assets 2,760,000 15% 3,174,000 Net fixed assets 7,360,000 40% 8,464,000 Total 10,120,000 11,638,000 Liabilities and Owner's Equity Accounts payable 2,208,000 12% 2,539,200 Long-term debt 2,000,000 2,000,000 Total liabilities 4,208,000 4,539,200 Common stock 2,000,000 2,000,000 Paid-in capital 2,712,000 2,712,000 Retained earnings 1,200,000 1,834,800 Common equity 5,912,000 6,546,800 Total 10,120,000 11,086,000 Financing Needs = 0 PROBLEM 14-2 PRO FORMA ACCOUNTS RECEIVABLE BALANCE CALCULATION A) DATA Credit sales 50% Collection in the month after sales 25% Collection two months after the sales 75% Accounts recievable at end of March 18,000 Jan Feb Mar Apr Sales 60,000 65,000 70,000 60,000 Credit sales 30,000 32,500 35,000 30,000 Accounts receivable from sales in Mar 26,250 Account receivable from sales in Apr 30,000 Accounts receivable at the end of April B) Cash sales 30,000 Prior month credit sales 25% 8,750 Two months prior credit sales 75% 24,375 Cash collected during April PROBLEM 14-3 FINANCIAL FORECASTING DATA Input Calculations Sales next yr 4,000,000 Earnings 5% 200,000 after taxes Current assets 20% 800,000 Fixed assets 1,000,000 Common equity 800,000 Paid-out 50% 100,000 dividends (% of ATE) S-T payables 10% 400,000 and trade credit Total assets = 1,800,000 Other financing = 1,300,000 Financing Needs = PROBLEM 14-4 FINANCIAL FORECASTING-PERCENT OF SALES DATA Current sales 18,000,000 Projected sales 22,000,000 Current assets 5,000,000 Fixed assets 5,000,000 Current assets/Sales 27.78% Net profit margin 5.00% Increase in Fixed assets 150,000 Accounts payable 2,000,000 Long-term debt 1,000,000 Common equity 6,500,000 Including: R/E 4,000,000 Dividends 750,000 A) Projected Financed Needs = B) Discretionary Financing Needs = C) Maximum growth rate in sales -24% Discretionary Financing Needs = PROBLEM 14-5 PRO FORMA BALANCE SHEET CONSTRUCTION DATA Total asset turnover 2.0 Average collection period 30.0 Fixed asset turnover 5.0 Inventory turnover 4.0 Current ratio 2.5 Sales $12,000,000 COGS 80% Debt ratio 40% Cash $200,000 Accts receivable 1,000,000 Inventories 2,400,000 Net fixed assets 2,400,000 Total assets $6,000,000 Current liabilities $1,440,000 Long-term debt 960,000 Total liabilities 2,400,000 Common equity 3,600,000 Total liabilities $6,000,000 and common equity PROBLEM 14-6 PERCENT OF SALES FORECASTING Cash No Marketable securities No Accounts payable Yes Notes payable No Plant and equipment No Inventories Yes PROBLEM 14-7 FINANCIAL FORECASTING - PERCENT OF SALES DATA Current assets 10.0 Net fixed assets 15.0 Total 25.0 Accts payable 5.0 Notes payable 0.0 Bonds payable 10.0 Common equity 10.0 Total 25.0 Sales 25,000,000 Expected sales 40,000,000 A) BALANCE SHEET (In Millions) Current assets 16.0 Net fixed assets 15.0 Total 31.0 Accts payable 8.0 Notes payable 3.0 Bonds payable 10.0 Common equity 10.0 Total 31.0 B) Total financing = PROBLEM 14-8 FINANCIAL FORECASTING -DISCRETIONARY FINANCING NEEDED DATA Sales 5,000,000 New sales 7,000,000 Next yr Net profit % 7% Present Percent of Projected Level Sales Level Current assets 2,000,000 0.40 2,800,000 Net fixed assets 3,000,000 0.60 4,200,000 Total 5,000,000 1.00 7,000,000 Accounts pay 500,000 0.10 700,000 Accrued exp 500,000 0.10 700,000 Notes pay 1,110,000 Current liabilities 1,000,000 0.20 2,510,000 Long-term debt 2,000,000 2,000,000 Common stock 500,000 500,000 Retained earnings 1,500,000 1,990,000 Common equity 2,000,000 2,490,000 Total 5,000,000 7,000,000 A) Discretionary Funding = B) Before After Current ratio = Debt ratio = PROBLEM 14-9 FORECASTING DISCRETIONARY FINANACING NEEDS DATA Assets:sales 30% Profits:sales 5% R/E:sales 1% Spont liab:assets 15% Sales 5,000,000 Rise in sales 500,000 Change in assets = Change in spontaneous liab = Change in R/E = New Discretionary financing = PROBLEM 14-10 FORECASTING NET INCOME A) Sales Growth Rate 20% COGS/Sales 70% Operating Expenses/Sales 15% Depreciation Expense (000) $50.00 Interest Expense (000) $10.00 Tax Rate 35% Dividends (000) $20.00 Income Statement (000) 2010 2011 Sales $1,500 Cost of Go

PROBLEM 14-3 FINANCIAL FORECASTING DATA Input Calculations Sales next yr 4,000,000 Earnings 5% 200,000 after taxes Current assets 20% 800,000 Fixed assets 1,000,000 Common equity 800,000 Paid-out 50% 100,000 dividends (% of ATE) S-T payables 10% 400,000 and trade credit Total assets = 1,800,000 Other financing = 1,300,000 Financing Needs =

PROBLEM 14-4 FINANCIAL FORECASTING-PERCENT OF SALES .................................... DATA Current sales 18,000,000 Projected sales 22,000,000 Current assets 5,000,000 Fixed assets 5,000,000 Current assets/Sales 27.78% Net profit margin 5.00% Increase in Fixed assets 150,000 Accounts payable 2,000,000 Long-term debt 1,000,000 Common equity 6,500,000 Including: R/E 4,000,000 Dividends 750,000 A) Projected Financed Needs = B) Discretionary Financing Needs = C) Maximum growth rate in sales -24% Discretionary Financing Needs = .........................

PROBLEM 14-5 PRO FORMA BALANCE SHEET CONSTRUCTION DATA Total asset turnover 2.0 Average collection period 30.0 Fixed asset turnover 5.0 Inventory turnover 4.0 Current ratio 2.5 Sales $12,000,000 COGS 80% Debt ratio 40% Cash $200,000 Accts receivable 1,000,000 Inventories 2,400,000 Net fixed assets 2,400,000 Total assets $6,000,000 Current liabilities $1,440,000 Long-term debt 960,000 Total liabilities 2,400,000 Common equity 3,600,000 Total liabilities $6,000,000 and common equity ................................

PROBLEM 14-7 FINANCIAL FORECASTING - PERCENT OF SALES DATA Current assets 10.0 Net fixed assets 15.0 Total 25.0 Accts payable 5.0 Notes payable 0.0 Bonds payable 10.0 Common equity 10.0 Total 25.0 Sales 25,000,000 Expected sales 40,000,000 A) BALANCE SHEET (In Millions) Current assets 16.0 Net fixed assets 15.0 Total 31.0 Accts payable 8.0 Notes payable 3.0 Bonds payable 10.0 Common equity 10.0 Total 31.0 B) Total financing = ...............................

PROBLEM 14-8 FINANCIAL FORECASTING -DISCRETIONARY FINANCING NEEDED DATA Sales 5,000,000 New sales 7,000,000 Next yr Net profit % 7% Present Percent of Projected Level Sales Level Current assets 2,000,000 0.40 2,800,000 Net fixed assets 3,000,000 0.60 4,200,000 Total 5,000,000 1.00 7,000,000 Accounts pay 500,000 0.10 700,000 Accrued exp 500,000 0.10 700,000 Notes pay 1,110,000 Current liabilities 1,000,000 0.20 2,510,000 Long-term debt 2,000,000 2,000,000 Common stock 500,000 500,000 Retained earnings 1,500,000 1,990,000 Common equity 2,000,000 2,490,000 Total 5,000,000 7,000,000 A) Discretionary Funding = B) Before After Current ratio = Debt ratio =