It is January 1^st, 2022. 2021 turned out very well for your friend – the projections were quite close. You are now being asked to project out an Income Statement, Balance Sheet, and Cash Flow Statement for 2022 using the new assumptions outlined below. 

1. The 2022 year sales will be 25% higher than the $110,000 realized in 2021
2. Gross margins in 2022 will be 55%, 5% higher than the 50% realized in 2021
3. Operating margins will be 22%, 2% higher than 20% realized in 2021
4. Accounts Receivable will be 12% of sales, lower than the 15% seen in 2021
5. Inventory will be 15% of sales, higher than the 12% seen in 2021
6. Accounts Payable will be 4% of sales in 2022, lower than the 5% seen in 2021
7. Accrued expenses payable will be 4% of sales in 2022, lower than the 7% seen in 2021
8. The Bank will continue to be paid 4% interest on the $50,000 worth of loans
9. The combined federal and provincial tax rates will be 30%
10. No new capital purchases are made
11. Closing cash is expected to remain at the same level predicted for and seen in 2021
12. Depreciation of existing capital equipment continues at the same rate observed in 2021

Comment on the performance of your friend’s company. How is the company doing? The friend is currently working at this business part-time.

• Should the friend quit the other job and work at this full-time?
• Should they do the opposite – and exit the business?
• Or, should they stay the course and see how things unfold?

What other kinds of information might you want to know to answer these questions?

Answer rating: 100% (QA)

The company is quite doing well on its first year With the information given for the projection it w... View the full answer