Question

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.

6. Projected financial statements and basic analysis Aa Aa E You are the most creative analyst for Black Sheep Broadcasting Company, and your admirers want to see you work your analytical magic once more. 2016 Actual Results 2017 Initial Forecast Dividends per share Depreciation Earnings before interest and taxes Gross profit Addition to retained earnings Common dividends Cost of goods sold Fixed operating costs except depreciation Earnings per share Earnings before taxes Number of common shares (millions) Net income Net sales Interest Taxes $36 (400) $2,600 $4,000 $607 (713) (16,000) (1,000) $66 $2,200 20.0 $1,320 $20,000 (400) (880) $36 (440) $2,860 $4,400 $763 (713) (17,600) (1,100) $74 $2,460 20.0 1,476 $22,000 (400) (984) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. The assigned depreciation method has changed. O The facility is currently operating at full capacity. O No additional external financing will be required. The forecasted increase in net sales is 10%. Additional external financing will be required by Black Sheep Broadcasting Company O The facility is not currently operating at full capacity.

Answer 1

ANSWER TO FIRST QUESTION:- Following are the assumptions made by Initial Income statement forecast:-

a). The assigned depreciation method has changed :- because we see an increase in amount of depreciation in the forecast and no fixed assets have been purchased in the current year so we can conclude that such increase in depreciation is a result  of a change in method of calculating depreciation.

b). No additional external financing will be required:- we can see that the interest expenditure in the forecast is unchanged so we can conclude that no new external financing has been raised.

c). The forecasted increase in net sales is 10% :- we can see that the amount of sales in the forecast is $22000 while the actual sales in 2016 is $20000 so we can conclude that the sales will increase by 10%.

d). The facility is not currently operating at its full capacity:- we see that the sales has increased in the forecast by 10% without any acquisition of new plant& machinery or any new capital expenditure so we can conclude that the firm has increased production by utilising it’s spare capacity.

ANSWER TO SECOND QUESTION:- the difference would be referred as external financing and can be acquired by issuing long term bonds ( just III ).

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