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
Net sales	$18,000	$27,000
Cost of goods sold	(14,400)	(21,600)
Gross profit	$3,600	$5,400
Fixed operating costs except depreciation	(900)	(1,350)
Depreciation	(360)	(540)
Earnings before interest and taxes	$2,340	$3,510
Interest	(360)	(360)
Earnings before taxes	$1,980	$3,150
Taxes	(792)	(1,260)
Net income	$1,188	1,890
Common dividends	(641.52)	(641.52)
Addition to retained earnings	$546.48	$1,248.48
Earnings per share	$59.4	$94.5
Dividends per share	$32.076	$32.076
Number of common shares (millions)	20.0	20.0

Which of the following are assumptions made by the initial income statement forecast? Check all that apply.

The forecasted increase in net sales is 50%.

Spontaneously generated funds will sufficiently cover any financing needs.

The cost of sales percentage for Green Rabbit Transportation Inc. will decrease due to economies of scale.

No excess capacity currently exists.

Green Rabbit Transportation Inc. will be issuing additional shares of common stock in the coming year.

Green Rabbit Transportation Inc. will be issuing additional debt in the coming year.

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

Answer Choices:

I and IV

I

II

IV

I and II

III and IV

III

II 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:

Spontaneously increase liabilities associated with the cost of goods sold

Reduce the level of cash on hand

Increase charges against net income, reducing the amount of available internally generated funds

Increase the length of the operating cycle