Discuss your assumptions underlying the sales forecasts and the underlying relationships. Explain how your financial plan impacts the company’s need for external capital. Your discussions should consider the internal growth rate and sustainable growth rate, in comparison to the growth rate in sales. 

 
 

 

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Information sheet for base cases Company tax rate Required rate of return Old Machines Original cost 7 years ago Useful life (years) Annual depreciation expense If disposed now: Current year Current disposal value Current book value Capital loss, current Tax saving on capital loss If disposed in 2 years: Disposal value in 3 years Book value in 3 years Capital gain in 3 years Tax paid on capital gain Old Machines - Overhaul Overhaul costs Extended useful life (years) Annual depreciation expense Disposal value, end extended life Book value, end extended life Capital gain, end extended life Tax paid on capital gain 30% 5.95% $30,400,000 10 $3,040,000 7 $5,000,000 $9,120,000 $4,120,000 $1,236,000 $2,500,000 $0 $2,500,000 $750,000 $2,000,000 5 $400,000 $1,200,000 $0 $1,200,000 $360,000 5.95 New Machine - Exacta Model Cost Useful life (years) Annual depreciation expense Govt. investment allowance rate Allowable investment expense Tax saving from inv allow Disposal value, end useful life Book value, end useful life Capital gain, end useful life Tax paid on capital gain New Machine - Pegasus Model Cost Useful life (years) Annual depreciation expense Govt. investment allowance rate Allowable investment expense Tax saving from inv allow Disposal value, end useful life Book value, end useful life Capital gain, end useful life Tax paid on capital gain $32,000,000 8 $4,000,000 10% $3,200,000 $960,000 $3,000,000 $0 $3,000,000 $900,000 $40,000,000 10 $4,000,000 10% $4,000,000 $1,200,000 $4,000,000 $0 $4,000,000 $1,200,000 Information sheet for base cases Company tax rate Required rate of return Old Machines Original cost 7 years ago Useful life (years) Annual depreciation expense If disposed now: Current year Current disposal value Current book value Capital loss, current Tax saving on capital loss If disposed in 2 years: Disposal value in 3 years Book value in 3 years Capital gain in 3 years Tax paid on capital gain Old Machines - Overhaul Overhaul costs Extended useful life (years) Annual depreciation expense Disposal value, end extended life Book value, end extended life Capital gain, end extended life Tax paid on capital gain 30% 5.95% $30,400,000 10 $3,040,000 7 $5,000,000 $9,120,000 $4,120,000 $1,236,000 $2,500,000 $0 $2,500,000 $750,000 $2,000,000 5 $400,000 $1,200,000 $0 $1,200,000 $360,000 5.95 New Machine - Exacta Model Cost Useful life (years) Annual depreciation expense Govt. investment allowance rate Allowable investment expense Tax saving from inv allow Disposal value, end useful life Book value, end useful life Capital gain, end useful life Tax paid on capital gain New Machine - Pegasus Model Cost Useful life (years) Annual depreciation expense Govt. investment allowance rate Allowable investment expense Tax saving from inv allow Disposal value, end useful life Book value, end useful life Capital gain, end useful life Tax paid on capital gain $32,000,000 8 $4,000,000 10% $3,200,000 $960,000 $3,000,000 $0 $3,000,000 $900,000 $40,000,000 10 $4,000,000 10% $4,000,000 $1,200,000 $4,000,000 $0 $4,000,000 $1,200,000

Answer rating: 100% (QA)

Answer and Explanation The assumptions underlying the sales forecast and the underlying relationships are important to consider when creating a financial plan for a company The sales forecast is based ... View the full answer