CCA ltd. has sales of $6,000 and the following balance sheet. Assume that all cu
ID: 2720082 • Letter: C
Question
CCA ltd. has sales of $6,000 and the following balance sheet.
Assume that all current assets and current liabilities change with sales and that sales are expected to grow to $8,000.
a. Use the percent of sales forecasting method to forecast these values and enter them in the forecast column of the balance sheet above.
b. The net profit margin (what the firm earns on sales) is 8%. Forecast the new level of equity and enter it in the forecast column of the balance sheet above.
c. Complete the balance sheet. Does the firm require additional external financing hint EFR calculation)? If so, how much?
Assets Cash Accounts rec. Inventory Plant Total Current $100 600 1200 2000 3900 Forecasted Liab. & Equity Accounts payable Long term debt Equity Current $900 1050 1950 Forecasted Total 3900Explanation / Answer
Workings:
Current Sales
$ 6,000.00
Expected Sales
$ 8,000.00
Increase in sales = 8000-6000=
$ 2,000.00
% increase in sales = 2000/6000=
33.33%
a.
Calculation of Forecasted Values :
Assets
Current
Forecasted
Liab. & Equity
Current
Forecasted
Cash
$ 100.00
$ 133.33
Accounts Payable
$ 900.00
$ 1,199.97
100*(1+33.33%)
900*(1+33.33%)
Accounts Rec.
$ 600.00
$ 799.98
Long term debt
$ 1,050.00
600*(1+33.33%)
Inventory
$ 1,200.00
$ 1,599.96
Equity
$ 1,950.00
1200*(1+33.33%)
Plant
$ 2,000.00
Total
$ 3,900.00
$ 3,900.00
b.
Calculation of Forecasted value of Equity:
Increase in Sales
$ 2,000.00
Net profit margin
8%
Increase in Equity = 2000*8%
$ 160.00
Current Equity =
$ 1,950.00
Forecasted Equity = 1950 +160=
$ 2,110.00
c.
Balance Sheet
Assets
Current
Forecasted
Liab. & Equity
Current
Forecasted
Cash
$ 100.00
$ 133.33
Accounts Payable
$ 900.00
$ 1,199.97
100*(1+33.33%)
900*(1+33.33%)
Accounts Rec.
$ 600.00
$ 799.98
Long term debt
$ 1,050.00
$ 1,223.30
600*(1+33.33%)
Inventory
$ 1,200.00
$ 1,599.96
Equity
$ 1,950.00
$ 2,110.00
1200*(1+33.33%)
Plant
$ 2,000.00
$ 2,000.00
Total
$ 3,900.00
$ 4,533.27
$ 3,900.00
$ 4,533.27
Calculation of Forecasted Debt and additional external financing:
Total Forecasted Assets =
$ 4,533.27
Less: Forecasted Accounts Payable
$ (1,199.97)
Less: Forecasted Equity
$ (2,110.00)
Forecasted Long term debt =
$ 1,223.30
Less: Current Long Term Debt
$ (1,050.00)
Additional external financing =
$ 173.30
Workings:
Current Sales
$ 6,000.00
Expected Sales
$ 8,000.00
Increase in sales = 8000-6000=
$ 2,000.00
% increase in sales = 2000/6000=
33.33%
a.
Calculation of Forecasted Values :
Assets
Current
Forecasted
Liab. & Equity
Current
Forecasted
Cash
$ 100.00
$ 133.33
Accounts Payable
$ 900.00
$ 1,199.97
100*(1+33.33%)
900*(1+33.33%)
Accounts Rec.
$ 600.00
$ 799.98
Long term debt
$ 1,050.00
600*(1+33.33%)
Inventory
$ 1,200.00
$ 1,599.96
Equity
$ 1,950.00
1200*(1+33.33%)
Plant
$ 2,000.00
Total
$ 3,900.00
$ 3,900.00
b.
Calculation of Forecasted value of Equity:
Increase in Sales
$ 2,000.00
Net profit margin
8%
Increase in Equity = 2000*8%
$ 160.00
Current Equity =
$ 1,950.00
Forecasted Equity = 1950 +160=
$ 2,110.00
c.
Balance Sheet
Assets
Current
Forecasted
Liab. & Equity
Current
Forecasted
Cash
$ 100.00
$ 133.33
Accounts Payable
$ 900.00
$ 1,199.97
100*(1+33.33%)
900*(1+33.33%)
Accounts Rec.
$ 600.00
$ 799.98
Long term debt
$ 1,050.00
$ 1,223.30
600*(1+33.33%)
Inventory
$ 1,200.00
$ 1,599.96
Equity
$ 1,950.00
$ 2,110.00
1200*(1+33.33%)
Plant
$ 2,000.00
$ 2,000.00
Total
$ 3,900.00
$ 4,533.27
$ 3,900.00
$ 4,533.27
Calculation of Forecasted Debt and additional external financing:
Total Forecasted Assets =
$ 4,533.27
Less: Forecasted Accounts Payable
$ (1,199.97)
Less: Forecasted Equity
$ (2,110.00)
Forecasted Long term debt =
$ 1,223.30
Less: Current Long Term Debt
$ (1,050.00)
Additional external financing =
$ 173.30
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