22 32 Chapter 5: Financial Statement Forecasting Error: Reference source not found the average of their two-year proportion of sales. On the balance sheet, accounts receivable, inventory, accounts payable, and accrued expenses are expected to be at the two-year average of the proportion of these items in relation to sales. The firm has planned an investment of $500,000 in fixed assets in 2018, with an estimated life of 10 years and no salvage value. These fixed assets will be depreciated using the straight line depreciation method. All other financial statement items are expected to remain constant in 2018. Assume the firm pays 4% interest on short-term debt and 7% on long term debt. Assume that the dividends in 2018 will be the same as those paid in 2017. a) What is the Discretionary Financing Needed (DFN) in 2018? Is this a surplus or deficit? b) DFN will be absorbed by long-term debt. Set up an iterative worksheet to eliminate it. c) Turn off iteration, and use the Scenario Manager to set up three scenarios: 1. Best Case-Sales are 15% higher than expected. 2. Base Case-Sales are exactly as expected. 3. Worst Case-Sales are 15% less than expected. What is the DFN under each scenario?
22 32 Chapter 5: Financial Statement Forecasting Error: Reference source not found the average of their two-year proportion of sales. On the balance sheet, accounts receivable, inventory, accounts payable, and accrued expenses are expected to be at the two-year average of the proportion of these items in relation to sales. The firm has planned an investment of $500,000 in fixed assets in 2018, with an estimated life of 10 years and no salvage value. These fixed assets will be depreciated using the straight line depreciation method. All other financial statement items are expected to remain constant in 2018. Assume the firm pays 4% interest on short-term debt and 7% on long term debt. Assume that the dividends in 2018 will be the same as those paid in 2017. a) What is the Discretionary Financing Needed (DFN) in 2018? Is this a surplus or deficit? b) DFN will be absorbed by long-term debt. Set up an iterative worksheet to eliminate it. c) Turn off iteration, and use the Scenario Manager to set up three scenarios: 1. Best Case-Sales are 15% higher than expected. 2. Base Case-Sales are exactly as expected. 3. Worst Case-Sales are 15% less than expected. What is the DFN under each scenario?
Chapter1: Financial Statements And Business Decisions
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32
Chapter 5: Financial Statement Forecasting
Error: Reference source not found
the average of their two-year proportion of sales. On the balance sheet,
accounts receivable, inventory, accounts payable, and accrued
expenses are expected to be at the two-year average of the proportion
of these items in relation to sales. The firm has planned an investment
of $500,000 in fixed assets in 2018, with an estimated life of 10 years
and no salvage value. These fixed assets will be depreciated using the
straight line depreciation method. All other financial statement items
are expected to remain constant in 2018. Assume the firm pays 4%
interest on short-term debt and 7% on long term debt. Assume that the
dividends in 2018 will be the same as those paid in 2017.
a) What is the Discretionary Financing Needed (DFN) in 2018? Is this a surplus or deficit?
b) DFN will be absorbed by long-term debt. Set up an iterative worksheet to eliminate it.
c) Turn off iteration, and use the Scenario Manager to set up three scenarios:
1. Best Case-Sales are 15% higher than expected.
2. Base Case-Sales are exactly as expected.
3. Worst Case-Sales are 15% less than expected.
What is the DFN under each scenario?
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