$6.$ Projected financial statements and basic analysis

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

$2017$ Initial Forecast

Net sales $$18,000$ $$27,000$

Cost of goods sold $(14,400)(21,600)$

Gross profit $$3,600$ $$5,400$

Fixed operating costs except depreciation $(900)(1,350)$

Depreciation $(360)(540)$

Earnings before interest and taxes $$2,340$ $$3,510$

Interest $(360)(360)$

Earnings before taxes $$1,980$ $$3,150$

Taxes $(792)(1,260)$

Net income $$1,1881,890$

Common dividends $(641\mathrm{.}52)(641\mathrm{.}52)$

Addition to retained earnings $$546\mathrm{.}48$ $$1,248\mathrm{.}48$

Earnings per share $$59\mathrm{.}4$ $$94\mathrm{.}5$

Dividends per share $$32\mathrm{.}076$ $$32\mathrm{.}076$

Number of common shares $($millions$)20\mathrm{.}020\mathrm{.}0$

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

The forecasted increase in net sales is $50\%.$

Saltwater Logistics Corp. will be issuing additional debt in the coming year.

Saltwater Logistics Corp. will be issuing additional shares of common stock in the coming year.

No excess capacity currently exists.

The cost of sales percentage for Saltwater Logistics Corp. will decrease due to economies of scale.

Spontaneously generated funds will sufficiently cover any financing needs.

Which of the following could be a direct cause of financing feedback?

I. Issuing additional common stock

II$.$ Purchasing additional buildings with internally generated funds

III. An unexpected increase in sales

IV$.$ Borrowing from the bank

II

II and IV

IV

III and IV

I and IV

I

I and II

III

What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might

reduce the level of cash on hand.

increase the length of the operating cycle.

spontaneously increase liabilities associated with the cost of goods sold.

increase charges against net income, reducing the amount of available internally generated funds.