3. Projected financial statements and basic analysis Aa Aa You are the most crea

Question

3. Projected financial statements and basic analysis Aa Aa You are the most creative analyst for Avatar Animators Inc., and your admirers want to see you work your analytical magic once more 2017 Initial 2016 Actual Results Forecast $577 $3,800 $2,470 $63 (380) $1,254 $34 Addition to retained earnings Gross profit Earnings before interest and taxes Earnings per share Depreciation Net income Dividends per share Number of common shares (millions) nterest Cost of goods sold Earnings before taxes Fixed operating costs except depreciation Taxes Net sales Common dividends $1,170 $5,320 $3,458 $92 (532) 1,847 $34 (380) (15,200) $2,090 (950) (836) $19,000 (677) (380) (21,280) $3,078 (1,330) (1,231) $26,600 (677) Which of the following are assumptions made by the initial income statement forecast? Check all that apply Additional external financing will be required by Avatar Animators Inc. The forecasted increase in net sales is 40% No additional external financing will be required The assigned depreciation method has changed The facility is currently operating at full capacity The facility is not currently operating at full capacity If Avatar Animators Inc. had neither a sufficient amount of excess capacity to handle forecasted increases in operations nor the level of retained earnings required to increase asset levels up to the necessary level for production, this difference would be referred to as which of the following forms? and could be acquired in I. Issuing additional common stock II. Borrowing from a bank using notes payable III. Issuing long-term bonds I and II II and III O Just II 0 I, II, and O Just III on

Explanation / Answer

requirement of external finance and could be acquired in the form of long term bonds as interest levels are lower than dividend levels. Hence, instead of issuing new equity, bonds should be issued. Notes payable can't be used as they are short term source of funds and are needed to be paid back in a year only

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