Facts and Assumption
Year	2014	2015	2016
Net sales	$20,613
Growth rate in sales		25%	30%
Cost of goods sold/net sales		86%	86%
Gen., sell,, and admin. expenses/net sales		12%	11%
Long-term debt	$ 760	$ 660	$ 560
Current portion long-term debt	$ 100	$ 100	$ 100
Interest rate		10%	10%
Tax rate		45%	45%
Dividend/earnings after tax		50%	50%
Current assets/net sales		29%	29%
Net fixed assets		$ 280	$ 270
Current liabilities/net sales		14.5%	14.4%
Owners' equity	$ 1,730
INCOME STATEMENT
Year	2014	Forecast 2015	2016
Net sales		$25,766
Cost of good sold		22,159
Gross profit		3,607
Gen., sell,, and admin. exp.		3,092
Interest expense		231
Earnings before tax		285
Tax		128
Earnings after tax		156
Dividends paid		78
Additions to retained earnings		78
BALANCE SHEET
Current assets		$ 7,472
Net fixed assets		280
Total assets		7,752
Current liabilities		3,736
Long-term debt		660
Equity		1,808
Total liabilities and shareholders' equity		6,204

13.

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.

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 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)?

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 companys 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

a	Using the information provided, construct a monthly cash budget for October through December 2014. Based on your analysis, will Noble enjoy a surfeit of cash, or require external financing?
b	Construct a pro forma income statement for the first fiscal quarter of 2015 and a pro forma balance sheet as of December 31, 2014. What is your estimated external financing needed for December 31?
c	Does the December 31, 2014, estimated external financing equal your cash surplus (deficit) for this date from your cash budget?
d	Based on your answers above, construct a cash flow forecast for Noble for the period October through December 2014.
Noble Selected Information and Financial Statements
	Sales (20 percent for cash, the rest on 30-day credit terms):
	2014 Actual			2014 Projected
	July	August	September	October	November	December
	76,000	88,000	266,000	125,000	51,000	53,000
	Purchases (all on 60-day terms):
	2014 Actual			2014 Projected
	July	August	September	October	November	December
	116,000	122,000	257,000	62,000	27,000	26,000
Salaries payable monthly				20,000
Principal payment on debt due in December				25,700
Interest due in December				9,000
Dividend payable in December				15,000
Taxes payable in November				19,000
Addition to accumulated depreciation in December				4,000
Cash balance on October 1, 2014				34,000
Minimum desired cash balance				15,000
Nobles annual income statement and balance sheet for September 30, 2014 appear below.
Additional information about the company's accounting methods and expectations for
the last three months of 2014 appear in the footnotes.
		Noble
		Annual Income Statement
		Fiscal Year ended September 30, 2014 ($ 000)
Net sales			1,581.6
Cost of goods sold1			1,098.0
Gross profits			483.6
Selling and administrative expenses2			240.0
Interest expense			18.0
Depreciation3			16.0
Net profit before tax			209.6
Tax at 33%			69.2
Net profit after tax			140.4
		Noble
		Balance Sheet
		September 30, 2014 ($ 000)
Assets
Cash			34.0
Accounts receivable			212.8
Inventory			425.0
Total current assets			671.8
Gross fixed assets			135.0
Accumulated depreciation			52.0
Net fixed assets			83.0
Total assets			754.8
Liabilities
Bank loan			0.0
Accounts payable			379.0
Accrued expenses4			55.0
Current portion long-term debt5			25.7
Taxes payable			56.0
Total current liabilities			515.7
Long-term debt			120.0
Shareholders' equity			119.1
Total liabilities and equity			754.8
1. Cost of goods sold consists entirely of items purchased during the quarter.
2. Selling and administrative expenses consist entirely of salaries.
3. Depreciation is straight-line at the rate of $4,000 per quarter.
4. Accrued expenses are not expected to change in the last quarter.
5. $25.7 due December 2014. No payments for remainder of year.