Pleas include all steps of calculations for my reference. Thanks in advance. Required - Complete proforma income statement Q - Sales of existing products are expected to increase by 5% annually. Raw materials for existing products is expected to start at 30% of sales in 2022 but increase in subsequent years by 2% a year (32% of sales in 2023, 34% of sales in 2024 etc.). Labour costs are expected to remain at 15% of sales for all 5 years. Marketing costs are expected to increase by 2% in 2022 and then increase by a further $15 million in 2023 and a further $25 million in 2024 and then remain at that level for subsequent years. The corporate tax rate is expected to be 42% of net income before tax for all 5 years. NABM uses a declining balance depreciation policy. Equipment is depreciated at a rate of 20% while plant is depreciated at a rate of 10%. For planning purposes, Rachel has been advised to assume that normal plant additions for the five years will be $15 million per year and normal equipment additions will be $25 million per year for the five years. Note that these additions are referred to as normal because they do not include any additions as part of the new product launches detailed in the chart below. Assume full depreciation is taken in year of purchase. These "normal" purchases will be financed with short-term debt. NABM is planning 2 major capital investments in the next five years. They are associated with the launch of two new products, Product A and Product B and are expected to happen in 2023 and 2024. The details are noted below. In order to maintain a capital structure close to 60% debt and 40% common equity, these major capital investments will be financed with 60% long term debt and 40% common share equity. Rachel also received a memo from NABM's investment advisors with their analysis of market returns and forecasts for interest rates, both short term and long term rates and common share prices and forecasted dividends for both common and preferred shares. See chart below. Interest is variable on short term debt and fixed on long term debt based on the rate at the time of issue. To minimize short term interest expense and increase asset efficiency, any excess cash beyond a year end balance of $40,000 will be used to pay down notes payable at the beginning of the next year. NABM's current assets, accounts payable and accruals grow at the same rate as total sales growth. Notes payable are mainly loans from NABM's line of credit and are used to finance any "normal" fixed asset purchases. NABM is required to pay $16 million of its long term debt annually. As part of Rachel's financial plan development she has been asked to estimate NABM's value today considering comparables for 2021 and future cash flows. Some valuation relevant ratios for a major competitor and the average for the industry within which NABM operates have been provided in a chart below
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Pleas include all steps of calculations for my reference. Thanks in advance.
Required - Complete proforma income statement
Q - Sales of existing products are expected to increase by 5% annually. Raw materials for existing products is expected to start at 30% of sales in 2022 but increase in subsequent years by 2% a year (32% of sales in 2023, 34% of sales in 2024 etc.). Labour costs are expected to remain at 15% of sales for all 5 years. Marketing costs are expected to increase by 2% in 2022 and then increase by a further $15 million in 2023 and a further $25 million in 2024 and then remain at that level for subsequent years. The corporate tax rate is expected to be 42% of net income before tax for all 5 years.
NABM uses a declining balance depreciation policy. Equipment is
NABM is planning 2 major capital investments in the next five years. They are associated with the launch of two new products, Product A and Product B and are expected to happen in 2023 and 2024. The details are noted below. In order to maintain a capital structure close to 60% debt and 40% common equity, these major capital investments will be financed with 60% long term debt and 40% common share equity.
Rachel also received a memo from NABM's investment advisors with their analysis of market returns and
NABM's current assets, accounts payable and accruals grow at the same rate as total sales growth. Notes payable are mainly loans from NABM's line of credit and are used to finance any "normal" fixed asset purchases. NABM is required to pay $16 million of its long term debt annually.
As part of Rachel's financial plan development she has been asked to estimate NABM's value today considering comparables for 2021 and future cash flows. Some valuation relevant ratios for a major competitor and the average for the industry within which NABM operates have been provided in a chart below.
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