Question

 6. Projected financial statements and basic analysis

 You are the most creative analyst for Black Sheep Broadcasting Company, and your admirers want to see you work your analytical magic once more.

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

•  The facility is currently operating at full capacity.

•  The assigned depreciation method has changed.

•  The facility is not currently operating at full capacity.

•  The forecasted increase in net sales is 30%.

•  Additional external financing will be required by Black Sheep Broadcasting Company

•  No additional external financing will be required.

 If Black Sheep Broadcasting. Company had neither a sufficient amount of excess capacity to handle forecasted

 increases in operations nor the level of retained earnings required to increase asset levels up to the necessary level

 for production, this difference would be referred to as _______  additional funds needed and could be acquired in which of the following forms?

•  alternative fiduciary necessities

•  added fair needs

•  additional financing needed

•  additional funds needed

 1. Issuing additional common stock

 II. Borrowing from a bank using notes payable

 III. Issuing long-term bonds

•  II and III

•  I only

•  Just III

•  I and II

•  I, II, and III

•  Just II

> 1) NO ADDITIONAL EXT FIN WILL BE REQ
2) THE FORECASTED INCREASE IN NET SALES IS___________
3) THE FACILITY IS CURRENTLY OPERATING A FULL CAP.

Answer 1

The following are assumptions made by the income statement forecast:

-The assigned depreciation method has changed.

-The facility is not currently operating at full capacity.

-forecasted increase in net sales is 30%

-no additional external financing will be required.

Since no information is given regarding prospective fixed asset purchase, it is assumed that there are no fixed asset purchases in 2017, hence depreciation expense has increased due to change in method.

Since sales have increased it is assumed that the facility is not operating at full capacity. (Note- changes in opening, closing stock have not been considered).

Increase in net sales is 30%.

Since number of common shares, interest expense is the same in 2016 and 2017 it is assumed that no additional financing is taken.

Additional funds needed.

I, II, and III