Use the spreadsheet from problem 30 to examine the impact of various scenarios. Add formulas to calculate ratios to examine the effect on leverage (debt ratio and times interest earned), profitability (profit margin, operating profit margin, EBIT /revenue, EBIT /assets), and accounting rates of return (ROA, ROC, ROE). You will need to calculate NOPAT, net operating profit after taxes (NOPAT = net income + (1 - tax rate) x interest expense). See Chapter 4 for ratio definitions. Unless otherwise stated, use the forecasting assumptions from the original Yummy Food problem, as seen in Figure I9.2. Forecast annual pro forma statements for 2015 to 2018. In each scenario, what do the financial ratios tell you about the financial plan? Explain the difference between accounting rates of return based on NOPAT and on net income.
a. Annual sales growth is IO% and all required external financing will be debt. Will the company breach the bank's requirement that the company's debt ratio not exceed 60%?
b. Same scenario as (a), except that the interest rate on debt is 15%.
c. Same scenario as (a), except that Yummy Food keeps its debt ratio at 40%.
d. Same scenario as (a), except that cost of goods sold is 9S% of sales each year.
e. Same scenario as (a), except each year's interest expense equals the average of the beginning of-year and end-of-year debt. For help with this question read "Forecasting Interest Expense" in Section I9.3.