It's STILL January 1, 2023, and you'll be going on Shark Tank in 2 weeks. You...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
It's STILL January 1, 2023, and you'll be going on Shark Tank in 2 weeks. You are unhappy with your previous Sales Forecast because your current sales to residences do not really predict your upcoming sales to commercial builders. You believe your incoming orders will be much higher than before with each order resulting in a much higher revenue stream. You decide to change your method of forecasting to a mix of Percent-of-Sales and Pro Forma forecasting. Required: 1 (25 pts) Using the information on the Assumptions tab, create a 5-year forecasted Income Statement on the Forecasted Financials tab. The Sharks gave you the $1,000,000 in funding you asked for in exchange for 25% ownership of your company's profits. You issued 26,000 $1-par shares to the Sharks and updated your additional paid- in capital by the excess received. The sharks have a 9% Required Rate of Return on their investment (needed for Milestone 3). All the following are complete by March 31, 2023: 1) your shark funding has been received, 2) new capital investments have been purchased and set up, and 3) additional labor has been hired and trained SALES: a. All Sales are credit sales. b. In 2023, your expanded operations enable Production and Sales to double your 2022 sales (due to selling more windows to the commercial builders and increasing the sale price per window). c. Quantity of windows sold is expected to increase 25% every year from 2024 on. d. Due to inflation and demand, at the start of 2024 you increase your selling price per window by 9%. COGS: Compute your 2022 COGS as a Percent of Sales ratio, and then subtract 10% because you'll be able to get volume discounts for your materials now that you've expanded. Use this adjusted ratio to forecast COGS across all years. SELLING & ADMINISTRATIVE EXPENSE: S&A Expense is a "mixed" expense, so fixed expenses must be removed before forecasting S&A, and then added back once that's done. Use a 3-year average Percent of Sales to forecast variable S&A expenses. (HINT: Recall that since S&A is an expense, and therefore negative, to remove fixed expenses, you must ADD them!) All S&A expenses are variable expenses EXCEPT for the following 2 fixed costs: 1. Rent expense of $15,000 per year in 2020-2022, increasing to $200,000 per year in 2023-2027. 2. Depreciation expense is included in S&A in the amount of 10% of Plant & Equipment each year. INTEREST EXPENSE: This is a Fixed cost, and is 10% of Long-term Liabilities. Guil TAYES. D TAXES: Because you live in a business-friendly State (Wyoming), you don't have to pay state taxes on your LLC's income. You do, however, still have to pay Federal taxes. Also, in 2022, higher tax rates were passed for the 2023 tax year, pushing income over $400,000 into the 39.6% tax bracket. Because of this, use 36% as your effective tax rate. (NOTE: If the taxes shown for 2020-2022 seem high, it's because you had income from another job that threw your LLC income into a slightly higher tax bracket. However, you'll quit that job If the sharks fund you!) SHARES: Issued 72,000 $1-par shares to the sharks for a 48% ownership stake. CASH: Increases to $50,000 in 2023 and stays at that level. MARKETABLE SECURITIES: Plan to keep Marketable Securities at 60% of Cash levels. ACCOUNTS RECEIVABLE: Use a 3-year average Receivables Turnover ratio to forecast. INVENTORY: Compute a 3-year average of inventory as a percent of sales, and then use that figure to forecast inventory levels through 2027. PLANT & EQUIPMENT: New capital expenditure of $750,000 dollars in 2023, paid for with equity funding from the sharks, rather than new debt. All capital expenditures are assumed to occur on January 1st of the year of purchase, and no equipment is sold or salvaged during the forecasted period. ACCUMULATED DEPRECIATION: Each year, 10% of the total amount of Plant and Equipment is added to the depreciation amount. ACCOUNTS PAYABLE: Use the 3-year average Current Ratio to forecast. ACCRUED EXPENSES: Use the 3-year average Percent of Sales method to forecast. LONG-TERM LIABILITIES: Pay down $100,000 of old debt every year starting in 2023. COMMON STOCK ($1 Par): Increase by the dollar value of shares issued to sharks (26,000 shares at $1 par). CAPITAL PAID IN EXCESS OF PAR: Compute new figure using shark investment, less par value of common stock. RETAINED EARNINGS: Fill in the amount needed to balance the Balance Sheet. DIVIDENDS: You do not pay dividends now and do not plan to while in a growth stage. FIXED & VARIABLE COSTS: The only fixed costs are rent expense, depreciation expense, and interest expense. All other costs are variable. MILESTONE 2 FORECASTED FINANCIALS Fill in the yellow highlighted cells with your forecasted figures. SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, out to the right, or both -- clearly labeling your work. All your work must be shown on this sheet, not on a separate tab. Forecasted Income Statement (25 points) Sales (all on credit) Cost of Goods Sold Gross Profit Selling and Administrative Expense Operating profit (EBIT) Interest expense Net Income before Taxes Taxes Net Income Shares Earnings per Share 2020 1,200,000 (800,000) 400,000 (304,900) 95,100 (35,000) 60,100 (36,900) 23,200 60,000 $0.39 DURA-CLEAR WINDOWS, LLC Proforma Income Statement 2022 2021 1,500,000 (1,040,000) 460,000 (350,500) 109,500 (45,000) 64,500 (49,200) 15,300 60,000 $0.26 1,875,000 (1,105,000) 770,000 (443,700) 326,300 (85,000) 241,300 (55,600) 185,700 78,000 $2.38 2023 2024 2025 2026 2027 It's STILL January 1, 2023, and you'll be going on Shark Tank in 2 weeks. You are unhappy with your previous Sales Forecast because your current sales to residences do not really predict your upcoming sales to commercial builders. You believe your incoming orders will be much higher than before with each order resulting in a much higher revenue stream. You decide to change your method of forecasting to a mix of Percent-of-Sales and Pro Forma forecasting. Required: 1 (25 pts) Using the information on the Assumptions tab, create a 5-year forecasted Income Statement on the Forecasted Financials tab. The Sharks gave you the $1,000,000 in funding you asked for in exchange for 25% ownership of your company's profits. You issued 26,000 $1-par shares to the Sharks and updated your additional paid- in capital by the excess received. The sharks have a 9% Required Rate of Return on their investment (needed for Milestone 3). All the following are complete by March 31, 2023: 1) your shark funding has been received, 2) new capital investments have been purchased and set up, and 3) additional labor has been hired and trained SALES: a. All Sales are credit sales. b. In 2023, your expanded operations enable Production and Sales to double your 2022 sales (due to selling more windows to the commercial builders and increasing the sale price per window). c. Quantity of windows sold is expected to increase 25% every year from 2024 on. d. Due to inflation and demand, at the start of 2024 you increase your selling price per window by 9%. COGS: Compute your 2022 COGS as a Percent of Sales ratio, and then subtract 10% because you'll be able to get volume discounts for your materials now that you've expanded. Use this adjusted ratio to forecast COGS across all years. SELLING & ADMINISTRATIVE EXPENSE: S&A Expense is a "mixed" expense, so fixed expenses must be removed before forecasting S&A, and then added back once that's done. Use a 3-year average Percent of Sales to forecast variable S&A expenses. (HINT: Recall that since S&A is an expense, and therefore negative, to remove fixed expenses, you must ADD them!) All S&A expenses are variable expenses EXCEPT for the following 2 fixed costs: 1. Rent expense of $15,000 per year in 2020-2022, increasing to $200,000 per year in 2023-2027. 2. Depreciation expense is included in S&A in the amount of 10% of Plant & Equipment each year. INTEREST EXPENSE: This is a Fixed cost, and is 10% of Long-term Liabilities. Guil TAYES. D TAXES: Because you live in a business-friendly State (Wyoming), you don't have to pay state taxes on your LLC's income. You do, however, still have to pay Federal taxes. Also, in 2022, higher tax rates were passed for the 2023 tax year, pushing income over $400,000 into the 39.6% tax bracket. Because of this, use 36% as your effective tax rate. (NOTE: If the taxes shown for 2020-2022 seem high, it's because you had income from another job that threw your LLC income into a slightly higher tax bracket. However, you'll quit that job If the sharks fund you!) SHARES: Issued 72,000 $1-par shares to the sharks for a 48% ownership stake. CASH: Increases to $50,000 in 2023 and stays at that level. MARKETABLE SECURITIES: Plan to keep Marketable Securities at 60% of Cash levels. ACCOUNTS RECEIVABLE: Use a 3-year average Receivables Turnover ratio to forecast. INVENTORY: Compute a 3-year average of inventory as a percent of sales, and then use that figure to forecast inventory levels through 2027. PLANT & EQUIPMENT: New capital expenditure of $750,000 dollars in 2023, paid for with equity funding from the sharks, rather than new debt. All capital expenditures are assumed to occur on January 1st of the year of purchase, and no equipment is sold or salvaged during the forecasted period. ACCUMULATED DEPRECIATION: Each year, 10% of the total amount of Plant and Equipment is added to the depreciation amount. ACCOUNTS PAYABLE: Use the 3-year average Current Ratio to forecast. ACCRUED EXPENSES: Use the 3-year average Percent of Sales method to forecast. LONG-TERM LIABILITIES: Pay down $100,000 of old debt every year starting in 2023. COMMON STOCK ($1 Par): Increase by the dollar value of shares issued to sharks (26,000 shares at $1 par). CAPITAL PAID IN EXCESS OF PAR: Compute new figure using shark investment, less par value of common stock. RETAINED EARNINGS: Fill in the amount needed to balance the Balance Sheet. DIVIDENDS: You do not pay dividends now and do not plan to while in a growth stage. FIXED & VARIABLE COSTS: The only fixed costs are rent expense, depreciation expense, and interest expense. All other costs are variable. MILESTONE 2 FORECASTED FINANCIALS Fill in the yellow highlighted cells with your forecasted figures. SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, out to the right, or both -- clearly labeling your work. All your work must be shown on this sheet, not on a separate tab. Forecasted Income Statement (25 points) Sales (all on credit) Cost of Goods Sold Gross Profit Selling and Administrative Expense Operating profit (EBIT) Interest expense Net Income before Taxes Taxes Net Income Shares Earnings per Share 2020 1,200,000 (800,000) 400,000 (304,900) 95,100 (35,000) 60,100 (36,900) 23,200 60,000 $0.39 DURA-CLEAR WINDOWS, LLC Proforma Income Statement 2022 2021 1,500,000 (1,040,000) 460,000 (350,500) 109,500 (45,000) 64,500 (49,200) 15,300 60,000 $0.26 1,875,000 (1,105,000) 770,000 (443,700) 326,300 (85,000) 241,300 (55,600) 185,700 78,000 $2.38 2023 2024 2025 2026 2027
Expert Answer:
Related Book For
Organizational Behaviour Concepts Controversies Applications
ISBN: 978-0132310314
6th Canadian Edition
Authors: Nancy Langton, Stephen P. Robbins, Timothy A. Judge, Katherine Breward
Posted Date:
Students also viewed these finance questions
-
Your assistant has prepared the following pro forma income statement for 2010. He used your forecast sales figure as the starting point. The administrative expenses are fixed except for salaries,...
-
Using Table 6-13, create a pro forma balance sheet using the percentage of sales method. If net income next year is $50,000, answer the following: a. How much did the owners take out of the business?...
-
Using your pro forma financial statements from The income statement expenses are a constant percentage of revenues except for interest, which remains equal in dollar amount to the 2015 level, and...
-
During the year ended 30 June 2019 XYZ Pty Limited, a resident Australian private company (non BRE), received a franked dividend of $10,800 with $3,200 of attached franking credits. XYZ Pty Limited...
-
A company currently using an inspection process in its material receiving department is trying to install an overall cost reduction program. One possible reduction is the elimination of one...
-
You are creating a customer database for the Lehigh Valley IronPigs minor league baseball team. Draw a project network given the information below. Complete the forward and backward pass, compute...
-
In an electric eel, each electrocyte can develop a voltage of \(150 \mathrm{mV}\) for a short time. For a total voltage of \(450 \mathrm{~V}\), how many electrocytes must be connected in series? A....
-
Review the data from Premium, Inc., given in Exercise 23-18. Consider the following additional information: Premium allocates manufacturing overhead to production based on standard direct labor...
-
Harris Fabrics computes its plantwide predetermined overhead rate annually based on direct labor-hours. At the beginning of the year, it estimated 30,000 direct labor-hours would be required for the...
-
Decision analyst Sandy Baron has taken a job with an up-and-coming consulting firm in San Francisco. As part of the move, Sandy will purchase a house in the area. There are two houses that are...
-
Barba LLC (Barba) rented commercial space, entering a five-year lease with Liao Properties Inc. (Liao). After one year, Barba sub-leased the space, as permitted under the lease agreement, to...
-
Edwin purchased a cottage in Pitt Meadows in 2004 for $87430. He has always lived in Richmond but usually spends a month or two at the cottage each summer. For the rest of the year the cottage is...
-
What are the food security issues in our northern, indigenous and low-income communities?
-
What are test of details of balances. Explain with an example.
-
What flexibility does irrevocable and irrevocable trust offer that other trusts do not? What are its advantages and disadvantages of irrevocable and irrevocable trust?
-
In a dissolution proceeding, if the wife has moved to California and resided there for the past year, but the husband remains in the couple's residential home in Virginia, which state has...
-
Show that the large eigenfunctions of the problem y" + (x + n) y = 0, y(0) = y() = 0, are given approximately by 1 = 9n 4974 for large integers n and find the corresponding eigenfunctions.
-
Assume today is the 21st of February. Using the information below, FT Extract, answer the following questions (parts i and ii). You work for a US company that is due to receive 250 million in June...
-
If you were an employee in a matrix structure, what pluses do you think the structure would provide? What about minuses?
-
Why do you think the subject of OB might be criticized as being only common sense, when one would rarely hear such a criticism of a course in physics or statistics? Do you think this criticism of OB...
-
How does Lewins three-step model of change deal with resistance to change?
-
Outline the main factors that might influence the size of the profit mark-up set by a business.
-
When are increased profits in a managers personal interest?
-
Make a list of six aims that a manager of a high street department store might have. Identify some conflicts that might arise between these aims.
Study smarter with the SolutionInn App