You are the most creative analyst for Black Sheep Broadcasting Company, and your admirers want to see you work your analytical magic once more.

	2016 Actual Results	2017 Initial Forecast
Net sales	$18,000	$21,600
Cost of goods sold	(14,400)	(17,280)
Gross profit	$3,600	$4,320
Fixed operating costs except depreciation	(900)	(1,080)
Depreciation	(360)	(432)
Earnings before interest and taxes	$2,340	$2,808
Interest	(360)	(360)
Earnings before taxes	$1,980	$2,448
Taxes	(792)	(979.2)
Net income	$1,188	1,468.8
Common dividends	(641.52)	(641.52)
Addition to retained earnings	$546.48	$827.28
Earnings per share	$59.4	$73.44
Dividends per share	$32.076	$32.076
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.

Black Sheep Broadcasting Company will be issuing additional debt in the coming year.

The forecasted increase in net sales is 20%.

No excess capacity currently exists.

Black Sheep Broadcasting Company will be issuing additional shares of common stock in the coming year.

The cost of sales percentage for Black Sheep Broadcasting Company will decrease due to economies of scale.

Spontaneously generated funds will sufficiently cover any financing needs.

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

I. Issuing additional common stock

II. Purchasing additional buildings with internally generated funds

III. An unexpected increase in sales

IV. Borrowing from the bank

IV

I and IV

III and IV

I

I and II

II

II and IV

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

reduce the level of cash on hand.

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

spontaneously increase liabilities associated with the cost of goods sold.

increase the length of the operating cycle.