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CHPT 3

1. Complete question 9 part a, b and c, posting the requested answers.

2. For the initial calculations in 9a and the scenarios in 9b and 9c, create 3 separate tabs in the excel spreadsheet with your calculations for a, b and c each in a tab. Upload the amended spreadsheet which supports your answers to #1.

A spreadsheet containing R&E Supplies 2018 pro forma financial forecast, as shown in Table 3.5, is available for download from McGraw-Hills Connect or your course instructor (see the Preface for more information). Using the spreadsheet information presented next, and the modified equations determined in question 8 earlier, extend the forecast for R&E Supplies contained in Table 3.5 through 2019.

R&E Supplies Assumptions for 2019 ($ thousands)

Growth rate in net sales 30.0%	Tax rate 45.0%
Cost of goods sold/net sales 86.0%	Dividend/earnings after tax 50.0%
Gen., sell., & admin. expenses/net sales 11.0%	Current assets/net sales 29.0%
Long-term debt $560	Net fixed assets $ 270
Current portion long-term debt $100	Current liabilities/net sales 14.4%
Interest rate 10.0%

a) What is R&Es projected external financing required in 2019? How does this number compare to the 2018 projection?

b) Perform a sensitivity analysis on this projection. How does R&Es projected external financing required change if the ratio of cost of goods sold to net sales declines from 86.0 percent to 84.0 percent?

c) Perform a scenario analysis on this projection. How does R&Es projected external financing required change if a severe recession occurs in 2019? Assume net sales decline 5 percent, cost of goods sold rises to 88 percent of net sales due to price cutting, and current assets increase to 35 percent of net sales as management fails to cut purchases promptly in response to declining sales.