FINC 5000

Homework Assignment for Week 8:

For Week 8, please turn in the answers to the following questions:

1.  The FINC 5000 Associates Corporation (FAC) has begun selling a new product and they want you to help them with next year’s pro forma financial statements.  Using the worksheet below, complete the company’s forecast.

   Assumptions:

   To begin with, FAC is sure sales will grow 20% next year.  Assume that is true.  Then assume that COGS, Current Assets, and Current Liabilities all vary directly with Sales (that means if sales grows a certain percentage, then the account in question will grow by that same percentage).  Assume that fixed expenses will remain unchanged and that $1500 worth of new Fixed Assets will be obtained next year.  Lastly, the current dividend policy will be continued next year.

                                                  FINC 5000 Associates Corporation

                                                                Financial Forecast

                        Estimated

This year       for next year

 Sales                           $10,000          ________

 COGS                                         4,000          ________

 Gross Profit                     6,000          ________

 Fixed Expenses               3,000          ________

 Before‑Tax Profit            3,000          ________

 Tax @ 33.3333%            1,000          ________

 Net Profit                      $2,000          ________

 Dividends                        $0              ________

 Current Assets            $25,000          ________

 Net Fixed Assets          15,000          ________

 Total Assets                $40,000          ________

 Current Liabilities       $17,000          ________

 Long‑term debt               3,000          ________

 Common Stock               7,000          ________

 Retained Earnings         13,000          ________

 Total Liabs & Eq        $40,000           ________

                                             (AFN) = ________

2.  The Wonders Corporation (WC) has begun selling a new product and they want you to help them determine if they need additional funding (AFN) next year.  Using the AFN formula method, calculate WWC’s AFN for next year (if any).

The company’s latest financial statements are shown below.  Sales growth next year is forecast to be 20% and the net profit margin is expected to remain the same as it is this year.  Cash, A/R, Inventory, A/P, and Accruals all vary directly with sales. The company is not operating at capacity and expects to be able to handle the increase in sales without adding fixed assets.  Also, the company expects to pay out 50% of any profits as dividends.

Wonders Corporation

Financial Statements

                                             Historical

                                             This year

Income statement:

Sales                                     $1,000

Costs                                                  $900

Profit                                         100

Balance Sheet:

Cash                                        $100

A/R                                         $200

Inventory                                $200

Fixed assets                             $500

Total assets                           $1,000

A/P                                            $50

Accruals                                    $50

N/P                                          $150

LTD                                       $400

Common Stock                       $100

Ret earnings                            $250

Total Liabilities & Equity    $1,000