Question (6) Directions: Click the "Case-link" displayed above and use the information provided in Hearth and Home, Parts A and B, to answer this question: The management of Hearth and Home provides you with the following projections of net sales (in 000's) for the next three years: 20Y4- $4,070; 20Y5- $4,680; 20Y6 - $5,538. How would you characterize the assumptions used in making these projections? O Conservative -projected sales growth is below historical levels OPlausible -projected sales growth is at historical levels OPlausible projected sales growth is slightly above historical levels, but achievable Aggressive - projected sales growth is considerably above historical levels learth and Home Part B Hearth and Home Balance Sheets (in $000s) As At June 30: 201 20Y2 203 ASSETS Current assets Cash 100 123 66 240 Accounts receivable 303 376 417 Inventory 461 547 117 70 Other current assets 107 874 Total current assets 1,096 957 257 245 313 Fixed assets 71 107 71 Trademarks and goodwill $ 1,190 1,516 $ 1,285 TOTAL ASSETS LIABILITIES AND OWNERS' EQUITY Current liabilities S Current portion-LTD 67 67 $ 67 Notes payable Accounts payable Accrued expenses 101 5 244 204 148 69 64 57 Other current liabilities 46 28 47 Total current labilities 527 368 319 Long-term debt 330 397 464 Other noncurrent liabilities 20 19 18 Owners' equity 639 501 389 TOTAL LIABILITIES AND OWNERS' EQUITY 1,516 1,285 1,190 Working investment $ 610 $ 496 452 40 earth and Home Part B Hearth and Home Income Statements (in $000s) Years Ended June 30: 20Y1 20Y2 20Y3 $ 2,500 $ 3,000 $ Sales 3,570 1,773 2,093 Cost of goods sold 2,467 727 Gross profit 907 1,103 33 36 36 Interest expense 50 60 52 Depreciation expense 586 477 371 Operating expense 345 270 421 Profit before taxes 188 149 108 Taxes 233 Net profit after taxes 196 162 Dividends 95 84 65 Earnings retalned 138 $ $ 112 97 88 Cash Flow Summary (in $000s) Company Name: Hearth and Home A (U) S L/E Line Number 20Y3 20Y2 Sales revenue (net) A Accounts receivable Cash collected from sales 3,570 3.000 (1) (73) (63) 3.497 2.937 (1)+ (2) (3) Cash cost of goods sold A Inventory A Accounts payable Cash paid for production Cash from trading activities (2.467) (2.093) (4) (5) (6) (86) (44) 40 56 (2.513) (2.081) 984 (3)+(7) ( 8) 856 (586) Cash SG&A expense A Prepaid expenses A Accrued expenses Cash paid for operating costs Cash after operations (477) (9) C (10) (11) (12) (8)+ (12) (13) 7 (581) (470) 403 386 0 Other income (expense) (14) A Other current and non-current (18) 29 (15) (16) (17) (18) accounts Income tax expense (188) (149) A Deferred income taxes A Income taxes payable Taxes paid and other income (expense) Net cash after operations (206) (120) 266 (19) 197 (13) (19) (20) (36) (33) (21) Interest expense A Interest payable Dividends declared or owners withdrawals (22) (84) (95) (23) (24) A Dividends payable Cash paid for dividends and interest Cash after financing costs (117) (131) (25) (20)+ (25) (26) 66 149 Current portion long-term debt (prior year) (27) (26) (27) (28) (67) (67) Cash after debt amortization 82 (1) A Fixed assets (64) (116) (29) A Investments (30) 4 Intangibles Cash paid for plant and investments Financing surplus (requirement) (36) (31) (64) 18 (32) (28) + (32) (33) (152) (153) 4 Short-term debt (notes payable) (34) 96 A Long-lerm debt A Preferred stock 4 Common stock (35) C (36) C (37) (38) 0 Total external financing Financing surplus (requirement) Total external financing 5 96 (33)+ (38) (39) (57) PROOF: A Cash and marketable securities (40) 23 (57) 23