Chapter 3 Problem 13
13.	Below are the 2014 financial statements for Aquatic Supplies Co. Also appearing are management?s 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.
a.	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.
b.	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.
c.	Is the required loan in part (b) equal to the required loan you calculated in part (a)? Why are they different?
d.	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%?
e.	Perform a scenario analysis on the company?s 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)?
f.	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 company?s cash balance. What are your projected values for long-term debt and cash and equivalents in 2019?
g.	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

Chapter 3 Problem 7 Note: Manual calculation mode is on. You must press F9 key to calculate. Facts and Assumptions Year Net sales Growth rate in sales Cost of goods soldet sales Gen., sell,, and admin. expenseset sales Long-term debt Current portion long-term debt Interest rate Tax rate Dividend/earnings after tax Current assetset sales Net fixed assets Current liabilitieset sales Owners' equity 2014 $ 20,613 2015 2016 25% 30% 86% 86% 12% 11% $ 760 $ 660 $ 560 $ 100 $ 100 $ 100 10% 10% 45% 45% 50% 50% 29% 29% $ 280 $ 270 14.5% 14.4% $ 1,730 INCOME STATEMENT Year Net sales Cost of good sold Gross profit Gen., sell,, and admin. exp. Interest expense Earnings before tax Tax Earnings after tax Dividends paid Additions to retained earnings 2014 Forecast 2015 $ 25,766 22,159 3,607 3,092 231 285 128 156 78 78 BALANCE SHEET Current assets Net fixed assets Total assets Current liabilities Long-term debt Equity Total liabilities and shareholders' equity $ 7,472 EXTERNAL FUNDING REQUIRED $ 1,548 280 7,752 3,736 660 1,808 6,204 2016 Chapter 3 Problem 13 13. Below are the 2014 financial statements for Aquatic Supplies Co. Also appearing are management's forecasts for how individual future. The company expects sales to grow 12% next year. Aquatic Supplies finances all of its needs with 10-year long-term deb of the year is added to the cash balance. a. Prepare a spreadsheet to estimate Aquatic Supplies 's 2015 need for external funding assuming long-term debt and interest expens b. Modify your spreadsheet forecast in part (a) to capture the interdependence between the loan and interest expense. That is, switch and include the necessary loan and added interest expense in your forecast. c. Is the required loan in part (b) equal to the required loan you calculated in part (a)? Why are they different? d. Perform a sensitivity analysis of Aquatic Supplies Co.'s external financing needs as determined in part (b). Assume sales grow at bank loan increase as sales go from 12% to 17%? e. Perform a scenario analysis on the company's projection as determined in part (b). Assume sales grow 20%, the cost of goods sol 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 f. Return now to the original assumptions and extend your projections in part (b) through 2019. Continue to assume that all externa interest and any excess cash will add to the company's cash balance. What are your projected values for long-term debt and cash g. 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% o 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 Sales Cost of Goods Sold Assumptions $ 582.762 240.828 12% 39% growth in sales percentage of sales Gross Profit Selling, General, & Administrative Exp. 341.934 257.507 49% percentage of sales Operating Income Before Deprec. Depreciation,Depletion,&Amortization 84.427 25.221 30% percentage of net PP&E Operating Profit Interest Expense 59.206 16.430 initially constant Pretax Income Total Income Taxes 42.776 14.971 Net income $ 35% percentage of earnings before taxes 2% 13% 5% no change minimum cash balance as % of sales percentage of sales percentage of sales 27.805 Balance Sheet (in $ millions) ASSETS Cash & Equivalents Account Receivable Inventories Prepaid Expenses $ 7.152 70.538 39.033 9.339 Other Current Assets Total Current Assets 27.076 153.138 6% percentage of sales Net Plant, Property & Equipment Intangibles Other Assets 81.648 9.415 24.642 15% no change 5% percentage of sales 6% 5% no change percentage of sales percentage of sales TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Other Current Liabilities Total Current Liabilities percentage of sales $ 268.843 $ 36.951 31.206 3.663 71.820 Long Term Debt Accrued wages Total Liabilities 157.720 21.418 250.958 EQUITY Common Stock Capital Surplus Retained Earnings Less: Treasury Stock 1.702 no change 55.513 no dividends no change paid so all income 118.729 is retained 158.059 no change TOTAL EQUITY TOTAL LIABILITIES & EQUITY 17.885 $ 268.843 initially constant 3% percentage of sales s forecasts for how individual financial statement items will vary in the s with 10-year long-term debt at 10% interest, while excess cash at the end -term debt and interest expense remain at their 2011 levels. erest expense. That is, switch your spreadsheet to "manual calculation" art (b). Assume sales grow at 17% instead of 12%. How much does the ow 20%, the cost of goods sold is 38% of sales, inventory falls from 5% ed in this scenario relative to your answer in part (b)? nue to assume that all external funding needs will be met with debt at 10% s for long-term debt and cash and equivalents in 2019? e cost of goods sold is 41% of sales, and selling, general and sh balance in 2019? e as % of sales