Question

You are the most creative analyst for Saltwater Logistics Corp., and your admirers want to see you work your analytical magic once more. 2016 Actual Results $2,080 Earnings before interest and taxes Cost of goods sold Earnings per share 2017 Initial Forecast $3,120 (19,200) (12,800) $52.8 $84 Net sales $24,000 Dividends per share Fixed operating costs except depreciation Gross profit $16,000 $29 (800) $3,200 (704) $486 $29 (1,200) $4,800 (1,120) Taxes Addition to retained earnings $1,110 Net income $1,056 Common dividends 1,680 (570) $2,800 (320) (570) $1,760 (320) Earnings before taxes Interest 20.0 20.0 Number of common shares (millions) Depreciation (320) (480) Which of the following are assumptions made by the initial income statement forecast? Check all that apply. Additional external financing will be required by Saltwater Logistics Corp. The forecasted increase in net sales is 50%. The facility is not currently operating at full capacity. The facility is currently operating at full capacity. The assigned depreciation method has changed. O No additional external financing will be required. If Saltwater Logistics Corp. 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 and could be acquired in which of the following forms?

Answer 1

Q1: Option 2, 4 and 6

• · The forecasted percentage increase in sales is = [($24000-$16000)/16000] = 50%
• We can see from the table that fixed and variable costs move in tandem with the sales increase (50%) => (1200) from (800), it is implied that it will need to increase its capacity to meet future sales forecasts
• Interest expense in both the cases comes to $320m and also the common dividends paid is equal implying that no additional debt has to be raised for the moment
• Depreciation method has not been changed as it has increased by the same amount i.e.; 320x1.5 = 480

. Q2: The additional funds could be acquired in the form of issuing additional common stock, borrowing additional funds from bank or by issuing a notes payable or long term bonds. Hence, I,II and III