Planning and Forecasting:Homework

1.JCI had $300 million in sales last year.The company expects that itssales will increase 12 percent during the upcoming year.JCI's CFO usesa simple linear regression to forecast the company's average inventorylevel for a given level of projected sales.On the basis of recent history,the estimated relationship between inventories and sales is providedbelow.Both "inventories" and "sales" are in millions of dollars (i.e., salesof $1,000,000 is put in the equation as 1).

Inventories = $2.5 + 0.0125(Sales)

a.What is the forecasted average inventory level for next year?

b.Currently the warehouse can accommodate $9.3 million in inventory.At what sales level will the warehouse reach maximum capacity?

2.Kraft Heinz had the following condensed balance at the end of last year (inmillions of dollars):

Cash13.5Accounts Payable5.0

Receivables26.0Accrued Liabilities7.5

Inventories68.0Notes Payable23.0

Total Current107.5Total Current35.5

Net Fixed15.0Long Term Bonds6.0

Total Assets122.5Common Stock15.0

Retained Earnings66.0

Total Liabilities & Equity122.5

Sales for last year were $140 million, while net income for the year was$3.5 million.Kraft Heinz paid dividends of $1.4 million to commonstockholders.Assume for next year all accounts that changespontaneously change at the same percent as sales.Fixed assets aresufficient to accommodate next year's sales.The profit margin anddividend payout ratio remain similar.Remember:

Profit Margin = Net Income / Sales

Dividend Payout Ratio = Dividends / Net Income

a.What are Kraft Heinz's Profit Margin and Dividend Payout ratio?

b.If sales are projected to increase by $70 million next year, what is the projected change in retained earnings for next year?

c.Construct Kraft Heinz's pro forma balance sheet for next year.Any additional funds needed are met as follows:80% notes payable and 20% by common stock.