You are the most creative analyst for Avatar Animators Inc., and your admirers want to see you work your analytical magic once more.

	2016 Actual Results	2017 Initial Forecast
Net sales	$20,000	$24,000
Cost of goods sold	(16,000)	(19,200)
Gross profit	$4,000	$4,800
Fixed operating costs except depreciation	(1,000)	(1,200)
Depreciation	(400)	(480)
Earnings before interest and taxes	$2,600	$3,120
Interest	(400)	(400)
Earnings before taxes	$2,200	$2,720
Taxes	(880)	(1,088)
Net income	$1,320	1,632
Common dividends	(712.8)	(712.8)
Addition to retained earnings	$607.2	$919.2
Earnings per share	$66	$81.6
Dividends per share	$35.64	$35.64
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.

__Avatar Animators Inc. will be issuing additional debt in the coming year.

__Avatar Animators Inc. will be issuing additional shares of common stock in the coming year.

__The cost of sales percentage for Avatar Animators Inc. will decrease due to economies of scale.

__Spontaneously generated funds will sufficiently cover any financing needs.

__No excess capacity currently exists.

__The forecasted increase in net sales is 20%.

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

I. Issuing additional common stock

II. Purchasing additional buildings with internally generated funds

III. An unexpected increase in sales

IV. Borrowing from the bank

I and II

IV

II and IV

I

III and IV

I and IV

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...(check one).

increase the length of the operating cycle.

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

reduce the level of cash on hand.

spontaneously increase liabilities associated with the cost of goods sold.