It is now January 1 st , 2021 and your friend has decided to start that new business They have decided not only to buy equipment but also to sell courses and merchandise Part B1 Based on a number of assumptions your friend wants to forecast the first years Income Statement and Balance Sheet Once again they call upon you to assist them in creating the forecasted statements In this assignment you are to construct an Income Statement and Balance Sheet based on the assumptions your friend has provided to you (6 marks) First year sales will total $100,000 Gross margins will be 50 Operating margins will be 20 Accounts Receivable will be about 15 of sales Inventory will be 12 of sales Accounts Payable will be 5 of sales Accrued expenses payable will be 7 of sales The Bank will provide a loan of $50,000 The annual interest will be 4 , compounded annually Interest only payments are needed until the loan is due in 5 years, where a balloon payment for the full balance must be paid The combined federal and provincial tax rates will be 30 Capital equipment purchases will be made at the start of the year These will total $70,000 These will depreciate at 10 per year Your friend wants ending cash to be $24,500, to have this amount on hand at year end Your friend will provide any other capital needed in the form of equity financing Part B2 It is January 1 st , 2022 2021 turned out very well for your friend the projections were quite close You are now being asked to project out an Income Statement, Balance Sheet and a Cash Flow Statement for 2022 using the new assumptions outlined below (8 marks) 2022 year sales will be 25 higher than the $110,000 realized in 2021 Gross margins in 2022 will be 55 , 5 higher than the 50 realized in 2021 Operating margins will be 22 , 2 higher than 20 realized in 2021 Accounts Receivable will be 12 of sales, lower than the 15 seen in 2021 Inventory will be 15 of sales, higher than the 12 seen in 2021 Accounts Payable will be 4 of sales in 2022, lower than the 5 seen in 2021 Accrued expenses payable will be 4 of sales in 2022, lower than the 7 seen in 2021 The Bank will continue to be paid 4 interest on the $50,000 worth of loans The combined federal and provincial tax rates will be 30 No new capital purchases are made Closing cash is expected to remain at the same level predicted for and seen in 2021 Depreciation of existing capital equipment continues at the same rate observed in 2021 Part B3 Comment on the performance of your friends company How is the company doing The friend is currently working at this business part time Should the friend quit the other job and work at this full time Should they do the opposite and exit the business Or, should they stay the course and see how things unfold What other kinds of information might you want to know to answer these questions (4 marks) Appendix A2 Canadian Motorbikes Comparative Balance Sheet ($M) For the Years Ended Dec 31, 2009 to 2014 2009 2010 2011 2012 2013 2014 Cash $ 10 76 $ 20 56 $ 25 78 $ 38 55 $ 34 21 $ 29 75 A R $ 45 01 $ 48 54 $ 84 89 $ 85 39 $ 95 32 $ 99 23 Inventory $ 17 12 $ 79 66 $ 82 69 $ 79 30 $ 53 88 $ 75 33 Total Current Assets $ 72 89 $ 148 76 $ 193 36 $203 24 $183 41 $ 204 31 Land, Plant and Equipment $ 54 32 $ 162 28 $ 184 18 $ 178 01 $ 182 74 $ 211 48 Other Assets $ 2 47 $ 5 39 $ 8 38 $ 8 82 $ 9 49 $ 11 65 Total Assets $129 68 $316 43 $385 92 $390 07 $375 64 $427 44 A P $ 53 77 $ 90 73 $ 112 15 $ 109 96 $ 129 04 $ 189 84 Current Portion of LT Debt $ 2 88 $ 18 09 $ 18 77 $ 14 32 $ 8 56 $ 6 22 Total Current Liabilities $ 56 65 $ 108 82 $ 130 92 $ 124 28 $ 137 60 $ 196 06 Long term Debt $ 52 82 $185 45 $ 193 84 $ 161 98 $ 104 68 $ 79 80 Total Liabilities $109 47 $294 27 $324 76 $286 26 $242 28 $275 86 Shareholders' Equity $ 20 21 $ 22 16 $ 61 16 $ 103 81 $ 133 36 $ 151 58 Total Liabilities and Equities $ 129 68 $316 43 $385 92 $390 07 $375 64 $427 44 Appendix A1 Canadian Motorbikes Comparative Income Statement ($M) For the Years Ended Dec 31, 2009 to 2014 2009 2010 2011 2012 2013 2014 Sales $287 14 $299 45 $725 45 $793 34 $814 55 $856 00 Cost of Goods Sold $209 69 $210 45 $506 91 $559 53 $595 34 $629 43 Gross Profit $ 77 45 $ 89 00 $218 54 $233 81 $219 21 $226 57 Selling and Administration $ 57 34 $ 60 06 $104 14 $125 53 $136 57 $160 23 Depreciation $ 7 53 $ 13 54 $ 21 54 $ 20 89 $ 21 22 $ 26 54 Operating Profit $ 12 58 $ 15 40 $ 92 86 $ 87 39 $ 61 42 $ 39 80 Interest $ 9 41 $ 12 53 $ 35 51 $ 24 67 $ 17 96 $ 13 01 Earnings Before Taxes $ 3 17 $ 2 87 $ 57 35 $ 62 72 $ 43 46 $ 26 79 Taxes $ 1 01 $ 0 92 $ 18 35 $ 20 07 $ 13 91 $ 8 57 Net Income $ 2 16 $ 1 95 $39 00 $ 42 65 $29 55 $ 18 22 tax rate 1 tax rate Net Income (1 tax rate) $ 32 32 32 32 32 32 68 68 68 68 68 8 57 $ 10 46 $ 63 15 $59 43 $ 41 76 $ 27 07 Appendix A3 Canadian Motorbikes Industry Averages Current Ratio Cash Ratio Inventory Turnover (days) A R Turnover (days) A P Turnover (days) Cash Conversion Cycle Fixed Assets Turnover Total Assets Turnover Debt Ratio Times Interest Earned Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity 1 25 0 27 44 12 32 45 60 23 16 35 3 72 2 05 0 54 9 33 32 00 14 00 8 50 17 46 38 25

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It is now January 1 st , 2021 and your friend has decided to start that new business. They have decided not only to buy

It is now January 1^st, 2021 and your friend has decided to start that new business. They have decided not only to buy equipment but also to sell courses and merchandise.

Part B1: Based on a number of assumptions your friend wants to forecast the first years Income Statement and Balance Sheet. Once again they call upon you to assist them in creating the forecasted statements. In this assignment you are to construct an Income Statement and Balance Sheet based on the assumptions your friend has provided to you. (6 marks)

First year sales will total $100,000
Gross margins will be 50%
Operating margins will be 20%
Accounts Receivable will be about 15% of sales
Inventory will be 12% of sales
Accounts Payable will be 5% of sales
Accrued expenses payable will be 7% of sales
The Bank will provide a loan of $50,000. The annual interest will be 4%, compounded annually. Interest-only payments are needed until the loan is due in 5 years, where a balloon payment for the full balance must be paid.
The combined federal and provincial tax rates will be 30%
Capital equipment purchases will be made at the start of the year. These will total $70,000. These will depreciate at 10% per year.
Your friend wants ending cash to be $24,500, to have this amount on hand at year-end.
Your friend will provide any other capital needed in the form of equity financing.

Part B2: It is January 1^st, 2022. 2021 turned out very well for your friend the projections were quite close. You are now being asked to project out an Income Statement, Balance Sheet and a Cash Flow Statement for 2022 using the new assumptions outlined below. (8 marks)

2022 year sales will be 25% higher than the $110,000 realized in 2021
Gross margins in 2022 will be 55%, 5% higher than the 50% realized in 2021
Operating margins will be 22%, 2% higher than 20% realized in 2021
Accounts Receivable will be 12% of sales, lower than the 15% seen in 2021
Inventory will be 15% of sales, higher than the 12% seen in 2021
Accounts Payable will be 4% of sales in 2022, lower than the 5% seen in 2021
Accrued expenses payable will be 4% of sales in 2022, lower than the 7% seen in 2021
The Bank will continue to be paid 4% interest on the $50,000 worth of loans
The combined federal and provincial tax rates will be 30%
No new capital purchases are made
Closing cash is expected to remain at the same level predicted for and seen in 2021
Depreciation of existing capital equipment continues at the same rate observed in 2021

Part B3: Comment on the performance of your friends company. How is the company doing? The friend is currently working at this business part-time.

Should the friend quit the other job and work at this full-time?
Should they do the opposite and exit the business?
Or, should they stay the course and see how things unfold?

What other kinds of information might you want to know to answer these questions? (4 marks)

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Appendix A2: Canadian Motorbikes Comparative Balance Sheet ($M) For the Years Ended Dec 31, 2009 to 2014 2009 2010 2011 2012 2013 2014 Cash $ 10.76 $ 20.56 $ 25.78 $ 38.55 $ 34.21 $ 29.75 A/R $ 45.01 $ 48.54 $ 84.89 $ 85.39 $ 95.32 $ 99.23 Inventory $ 17.12 $ 79.66 $ 82.69 $ 79.30 $ 53.88 $ 75.33 Total Current Assets $ 72.89 $ 148.76 $ 193.36 $203.24 $183.41 $ 204.31 Land, Plant and Equipment $ 54.32 $ 162.28 $ 184.18 $ 178.01 $ 182.74 $ 211.48 Other Assets $ 2.47 $ 5.39 $ 8.38 $ 8.82 $ 9.49 $ 11.65 Total Assets $129.68 $316.43 $385.92 $390.07 $375.64 $427.44 A/P $ 53.77 $ 90.73 $ 112.15 $ 109.96 $ 129.04 $ 189.84 Current Portion of LT Debt $ 2.88 $ 18.09 $ 18.77 $ 14.32 $ 8.56 $ 6.22 Total Current Liabilities $ 56.65 $ 108.82 $ 130.92 $ 124.28 $ 137.60 $ 196.06 Long-term Debt $ 52.82 $185.45 $ 193.84 $ 161.98 $ 104.68 $ 79.80 Total Liabilities $109.47 $294.27 $324.76 $286.26 $242.28 $275.86 Shareholders' Equity $ 20.21 $ 22.16 $ 61.16 $ 103.81 $ 133.36 $ 151.58 Total Liabilities and Equities $ 129.68 $316.43 $385.92 $390.07 $375.64 $427.44 Appendix A1: Canadian Motorbikes Comparative Income Statement ($M) For the Years Ended Dec 31, 2009 to 2014 2009 2010 2011 2012 2013 2014 Sales $287.14 $299.45 $725.45 $793.34 $814.55 $856.00 Cost of Goods Sold $209.69 $210.45 $506.91 $559.53 $595.34 $629.43 Gross Profit $ 77.45 $ 89.00 $218.54 $233.81 $219.21 $226.57 Selling and Administration $ 57.34 $ 60.06 $104.14 $125.53 $136.57 $160.23 Depreciation $ 7.53 $ 13.54 $ 21.54 $ 20.89 $ 21.22 $ 26.54 Operating Profit $ 12.58 $ 15.40 $ 92.86 $ 87.39 $ 61.42 $ 39.80 Interest $ 9.41 $ 12.53 $ 35.51 $ 24.67 $ 17.96 $ 13.01 Earnings Before Taxes $ 3.17 $ 2.87 $ 57.35 $ 62.72 $ 43.46 $ 26.79 Taxes $ 1.01 $ 0.92 $ 18.35 $ 20.07 $ 13.91 $ 8.57 Net Income $ 2.16 $ 1.95 $39.00 $ 42.65 $29.55 $ 18.22 tax rate 1 - tax rate Net Income + |(1-tax rate) $ 32% 32% 32% 32% 32% 32% 68% 68% 68% 68% 68% 8.57 $ 10.46 $ 63.15 $59.43 $ 41.76 $ 27.07 Appendix A3: Canadian Motorbikes Industry Averages Current Ratio Cash Ratio Inventory Turnover (days) A/R Turnover (days) A/P Turnover (days) Cash Conversion Cycle Fixed Assets Turnover Total Assets Turnover Debt Ratio Times Interest Earned Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity 1.25 0.27 44.12 32.45 60.23 16.35 3.72 2.05 0.54 9.33 32.00% 14.00% 8.50% 17.46% 38.25%