RedInc. a publicly traded software company wishes to prepare a budgeted income statement for December 31, 2020. They project sales for 2020 will be twice as large as the 2019 sales (sales grew to $343,750 in 2019). The following additional information has also been collected

• Merchandise/Inventory costs are estimated to be 20 % of annual sales
• Selling and Admin costs are 30% of annual sales
• Total depreciation for the year will be $110, 000
• Tax rate: 35%
• Outstanding number of shares 68,750, Shares are trading at $17.50.
• Industry Averages: Debt Ratio: 56% R.O.A: 12.5%, R.O.E. 14%, E.P.S $1.03

Complete the following budgeted income statement (10 MARKS)

Budgeted Income Statement	December 2020
Sales
Merchandise/Inventory costs
Selling and Admin costs
Total Cost
Depreciation	110, 000
Net Income before Taxes (NIBT)
Taxes (35%)
Net Income after Taxes (NIAT)

Calculations 10 MarkS - For 2020 (ONE MARK PER CALCULATION 1- 8,-- 2 marks for Qs 9)

1. The projected sales for RedInc :

2. Projected Selling and Admin costs for are:

3. Merchandise/Inventory costs are estimated

4. The total cost:

5. The projected Net income before taxes for is:

6. Projected taxes are :

7. Projected Net income after taxes is

8. Projected Earnings Per Share for RedInc is:

9. Shareholders Equity is :

Using the RedInc information and calculations, complete the following short answers (20 Marks)

1. How much, if any, additional financing will RedInc need in December 2020? Explain ( 2 marks)

2. IF additional financing is required which of the three activities within the Cash flow would be impacted and explain if it would be an outflow or inflow (explain). (4 marks)

3. A. IF RedInc. was in a negative cash position and wanted to raise capital via Bond Issuance instead equity financing explain the advantages of doing so. (3 marks)

3 b. Assume, REDInc issued bonds with a coupon rated of 18%, did they achieve financial leverage (hint- refer to their ROE)-- Explain( 2 marks)

3c. Assume, REDInc issued bonds with a coupon rated of 18%, and the maket rate is 12 %, will the bond be sold at a premium or discount -- Explain (2 marks)

4. Calculate the ROE and comment how it compares relative to the industry ROE average if the industry benchmark is 14% (3 marks)

5. What is the purpose (s) of a cash budget? ( 4 marks)