PROBLEM ONE (20 MARKS) Financial information on AAA Ltd. is shown below. AAA Ltd. Income Statement For the Year Ended December 31st, 2019 2018 5,375,25 4.025,350 Sales 0 Cost Of Goods Sold Other Expenses Depreciation Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Taxes (30%) 2,835,45 0 2,105,837 1,100,50 0 1,058,600 75,500 67,800 1,363,80 793,113 84,350 68,925 1,279,45 724,188 383,835 217,256 Net Income 895,615 $ 506,932 AAA Ltd. Balance Sheet As at December 31st, ASSETS 2019 Cash & Equivalent 67,250 Short-term investments 225,783 Inventories 1,522,500 Accounts Receivable 303,200 Total Current Assets 2,118,733 Prop, Plant & Equip - Net 2,582,989 2018 53,925 192,243 1,407,530 221,058 1,874,756 2,002,958 Total Assets 4,701,672 3,877,714 LIABILITIES & EQUITY Accounts Payable Notes Payable Accruals Short-term Debt Total Current Liabilities 392,952 275,929 101,982 89,203 76,205 57,292 325,029317,416 896,168 739,840 AFF 210 ASSIGNMENT Two Long-Term Debt Total Liabilities Common Share Capital Retained Earnings Total Equity Total Liabilities and Equity 1,054,024 1,950,192 650,000 2,101,480 2,751,480 $ 4,701,672 873,204 1,613,044 650,000 1,614,670 2,264,670 $ 3,877,714 PROBLEM Two (20 MARKS) In addition to the AAA Ltd. financial statements in Problem One, you are given more information as follows. Sales are forecast to increase by 20% in 2020. Notes Payable, Short-term Debt, Long-term Debt, and Common Share Capital will not change. Net Plant and Equipment is forecasted to be $2,900,000 next year. Short-term investments are expected to be $240,000. In 2020, the company's dividend payout ratio will be 40%. In 2020, cost of goods sold is expected to be 52% of sales. Other expenses will be 23% of sales. Depreciation expense in 2020 is expected to be $90,000. Cash is expected to be 2% of sales, and inventories will be 30% of sales. Accounts receivable will be 6% of sales. Accounts payable will be 5% of sales. Accruals will be 1% of sales. ! The company is expected to pay 4% per year compounded annually on its short-term debt and 6% per year compounded annually on its long-term debt. The interest expense on the short-term debt in 2020 is calculated as: [interest rate on short-term debt * amount of short-term debt outstanding at the end of 2019]. The interest expense on the long-term debt is calculated as: [interest rate on long- term debt * amount of long-term debt outstanding at the end of 2019]. The company's tax rate is 30%. Based on the information provided you are to: a) Complete the pro-forma income statement and balance sheet for 2020. b) Calculate the amount of Additional Funds Needed in 2020