A.  Consider the pro forma & actual financial statements below for MQ Software (MQ):

2021 Income Statement (projected)
Net sales	600
Less:  CGS	300
Gross Profit	300
Less: Fixed SGA	60
EBITDA	240
Less: Depreciation	50
EBIT	190
Less: Interest exp	40
EBT	150
Less: Taxes @ 40%	60
Net Income	90
2020 Balance Sheet (actual)
Cash		60			Accounts payable & Accruals	50
Accounts receivable		120			Total current liabilities	50
Inventory		80
Total current assets		260			Long-term debt	620
Gross fixed assets		1,000			Common stock	100
Accumulated depreciation		200			Retained earnings	290
Net fixed assets		800			Total equity	390
Total		1,060			Total	1,060

 

2021 Balance Sheet (projected)
Cash	30		Accounts payable & Accruals	150
Accounts Receivable	130		Total current liabilities	150
Inventory	210
Total current assets	370		Long-term debt	600
Gross fixed assets	1,120		Common stock	110
Accumulated depreciation	250		Retained earnings	380
Net fixed assets	870		Total equity	490
Total	1,240		Total	1,240

What is MQ’s projected Cash Build for 2021?

What is MQ’s projected Cash Burn and Net Cash Build Burn for 2021?

B.  The Additional Funding Needed (AFN) formula develops a conceptual basis for estimating external funding requirements for a start-up company.  Because of its objective nature, the formula often must be customized and adapted to address industry or company specific fact patterns.  The following pro forma Balance Sheet reflects projected company status AFTER its first year of operation:

Cash*                           25,000              Payables*                                        35,000                          

Receivables*                  125,000             Accruals*                                       20,000

Inventories*                  300,000                         Total CL                            55,000

            Total CA            450,000

                                                            Convertible LT Debt                          200,000

Net Fixed Assets           500,000              Common Stock                        825,000                                                                                                    

Retained Earnings      (130,000)

Total Assets                  950,000              Total Debt & Equity                  950,000

*Accounts which vary linearly with Sales

The first year (Year 1) projected sales which the asset structure above is expected to support is $1,900,000; and LOSSES for the company’s pre-revenue period were $35,000 and are included in the projected Retained Earnings balance above—the rest of the balance is from the projected Income Statement).  What is the expected NET LOSS percentage (%) for Year 1? 

Sales are expected to be $ 3,325,000 in the next year (Year 2); and $6,650,000 in Year 3. The company projects a 5% net profit in year 2 and a 6% net profit in year 3; believes it will need $ 700,000 in new FIXED ASSETS to support the projected Sales growth in Years 2 & 3; and that it will be able to sell $500,000 in NEW Convertible Long Term Debt (LTD) during this period to partially fund new asset requirements.  Note that the firm’s financial model assumes that all Balance Sheet accounts annotated with an (*) will increase at the same rate as the Sales projection.  By modifying and adapting the AFN formula to these facts, determine how much additional (external) financing (in EXCESS OF NEW LTD) will be required to support projected Sales growth in Years 2 & 3.