Five Year Forecast

Due Sunday, Feb. $4,11$:$59$pm

You have just been hired by Fred's Furniture as their new Financial Analyst. Fred has asked you to dive right in and take a cold eyes look at their last five years and prepare a five

year forecasted income statement. He has provided you with the previous five years of Income Statements along with detailed Sales, COGS and Gross Margin history for the same

period. Fred has also asked key members of his management team. Their feedback to you is below. Fred wants you to complete the forecast side by side the actuals along with

three observations on your forecast and areas of improvement for the company. Answers on the Income Stmt History Tab $($Highlighted in green$)$

From Sales VP$,$ Sal Provolone: "Don't be misled by our great numbers in $2020$ and $2021.$ Covid really had folks buying our stuff as everyone stayed home. Our existing products

which now includes our Office Furniture line, generally will grow around $3\%,$ but there's about a $25\%$ chance my sales force with be able to double that growth rate to $6\%$ with

some extra motivation from me$.$ Those are generalizations so you will need to dig into the details if you want a more accurate forecast. Don't ask me what the new product lines of

Outdoor Furniture and Gaming Furniture will do$.$ The Marketing folks will tell you that. I can tell you my sales guys like selling the new stuff because the commission is doubled at

$5\%,$ but only for the first three years. After that the commission drops back to the standard $2\mathrm{.}5\%$ of Sales."

From Marketing VP$,$ Janet James: "Welcome to the team, we're really excited to have you aboard.

Sal's probably gave you the scoop on our existing products Sales growth. We're really excited

about the new products of Outdoor Furniture and Gaming Furniture. Sal is sandbagging me that

they will only sell $$5,000$ of Outdoor Furniture and $$4,500$ of Gaming Furniture. I don't like it$,$ but

it's fair because his guys really haven't sold in those markets before. However, we really think they

will take off for the next three years. Our marketing analyst has come up with the following

probability numbers for sales growth. We also own gross margin, but it is heavily dependent on

Operations."

Expected Sales Growth of New Products

First $3$ Yrs

Last $2$ Yrs

From Operations VP: Joe Bagadonuts: "How ya$\text{'}$ doing? Look we do a good job on our costs for the

most part. You can see the detail, but we generally keep COGS at $70\%$ of Sales. So that's a good

estimate for existing products. New products are harder to predict as we can often leverage new

suppliers to get better prices in exchange to become long term vendors with us$.$ What that means is

that we tend to have lower costs for a few years and then they start putting the screws to us and

our costs go up$.$ The chart at left is what you should expect for new products."

New Products Cost Profile

From Chief Accounting Officer, Aleisha Sanders: $"$So hopefully the team has been good to you. I can fill out the rest

of the details. Our General and Admin costs vary in steps. We found once total Sales went over $$160k,$ our total

G&A jumped from $10\%$ to $12\%$ of total Sales. We would anticipate a similar jump from $12\%$ to $14\%,$ once Sales go

over $$210k.$ Fred says that he won't tolerate expense growth beyond that. We don't have any debt, so no Interest

expense. Taxes are the standard rate of $21\%.$