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	$16,000	$19,200
Cost of goods sold	(12,800)	(15,360)
Gross profit	$3,200	$3,840
Fixed operating costs except depreciation	(800)	(960)
Depreciation	(320)	(384)
Earnings before interest and taxes	$2,080	$2,496
Interest	(320)	(320)
Earnings before taxes	$1,760	$2,176
Taxes	(704)	(870.4)
Net income	$1,056	1,305.6
Common dividends	(570.24)	(570.24)
Addition to retained earnings	$485.76	$735.36
Earnings per share	$52.8	$65.28
Dividends per share	$28.512	$28.512
Number of common shares (millions)	20.0	20.0

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

The assigned depreciation method has changed.

Additional external financing will be required by Saltwater Logistics Corp.

No additional external financing will be required.

The forecasted increase in net sales is 20%.

The facility is currently operating at full capacity.

The facility is not currently operating at full capacity.

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 additional funds needed and could be acquired in which of the following forms?

I. Issuing additional common stock

II. Borrowing from a bank using notes payable

III. Issuing long-term bonds

I only

Just II

I and II

I, II, and III

Just III

II and III