projected financial statements and basic analysis

6. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Green Rabbit Transportation Inc., and your admirers want to see you work your analytical magic once more. 2016 Actual Results 2017 Initial Forecast Common dividends Net sales Addition to retained earnings Earnings before taxes Taxes Earnings before interest and taxes Depreciation Dividends per share Number of common shares (millions) Net income Earnings per share Fixed operating costs except depreciation Cost of goods sold Gross profit Interest (535) $15,000 $455 $1,650 (660) $1,950 (300) $27 20.0 $990 (535) $19,500 $806 $2,235 (894) $2,535 (390) $27 20.0 1,341 $67 (975) (15,600) $3,900 (300) $50 (750) (12,000) $3,000 (300) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. O Green Rabbit Transportation Inc. will be issuing additional shares of common stock in the coming year. X The forecasted increase in net sales is 30%. O Green Rabbit Transportation Inc. will be issuing additional debt in the coming year. O Spontaneously generated funds will sufficiently cover any financing needs. O The cost of sales percentage for Green Rabbit Transportation Inc. will decrease due to economies of scale. No excess capacity currently exists. Which of the following could be a direct cause of financing feedback? I. Issuing additional common stock II. Purchasing additional buildings with internally generated funds III. An unexpected increase in sales IV. Borrowing from the bank O II and IV OIV O I and IV O II O I and II O III O III and IV What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might: Increase the length of the operating cycle O Reduce the level of cash on hand Spontaneously increase liabilities associated with the cost of goods sold O Increase charges against net income, reducing the amount of available internally generated funds 6. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Green Rabbit Transportation Inc., and your admirers want to see you work your analytical magic once more. 2016 Actual Results 2017 Initial Forecast Common dividends Net sales Addition to retained earnings Earnings before taxes Taxes Earnings before interest and taxes Depreciation Dividends per share Number of common shares (millions) Net income Earnings per share Fixed operating costs except depreciation Cost of goods sold Gross profit Interest (535) $15,000 $455 $1,650 (660) $1,950 (300) $27 20.0 $990 (535) $19,500 $806 $2,235 (894) $2,535 (390) $27 20.0 1,341 $67 (975) (15,600) $3,900 (300) $50 (750) (12,000) $3,000 (300) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. O Green Rabbit Transportation Inc. will be issuing additional shares of common stock in the coming year. X The forecasted increase in net sales is 30%. O Green Rabbit Transportation Inc. will be issuing additional debt in the coming year. O Spontaneously generated funds will sufficiently cover any financing needs. O The cost of sales percentage for Green Rabbit Transportation Inc. will decrease due to economies of scale. No excess capacity currently exists. Which of the following could be a direct cause of financing feedback? I. Issuing additional common stock II. Purchasing additional buildings with internally generated funds III. An unexpected increase in sales IV. Borrowing from the bank O II and IV OIV O I and IV O II O I and II O III O III and IV What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might: Increase the length of the operating cycle O Reduce the level of cash on hand Spontaneously increase liabilities associated with the cost of goods sold O Increase charges against net income, reducing the amount of available internally generated funds