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Chapter 17: Financial Planning and Forecasting
Learning Objectives
461
Chapter 17
Financial Planning and Forecasting
Learning Objectives
After reading this chapter, students should be able to:
◆ Discuss the importance of strategic planning and the central role that financial forecasting plays in
the overall planning process.
◆ Explain how firms forecast sales.
462
Lecture Suggestions
Chapter 17: Financial Planning and Forecasting
Lecture Suggestions
In Chapter 4, we looked at where the firm has been and where it is now—its current strengths and
weaknesses. Now, in Chapter 17, we look at where it is projected to go in the future.
DAYS ON CHAPTER: 3 OF 56 DAYS (50-minute periods)
Chapter 17: Financial Planning and Forecasting
Answers and Solutions
463
Answers to End-of-Chapter Questions
17-1 The need for external financing depends on the following key factors:
17-5 a. +.
464
Answers and Solutions
Chapter 17: Financial Planning and Forecasting
Solutions to End-of-Chapter Problems
17-1 AFN = (A0*/S0)S – (L0*/S0)S – MS1(1 – Payout)
17-2 AFN =
(0.3)($300,000) 00,000)(0.1)($1,0$1,000,000
$4,000,000 −−
17-4 a. 2015 Forecast Basis 2016
17-5 Sales = $5,000,000,000; FA = $1,700,000,000; FA are operated at 90% capacity.
Chapter 17: Financial Planning and Forecasting
Answers and Solutions
465
c. Sales increase 12%; FA = ?
17-6 Sales = $300,000,000; gSales = 12%; Inv. = $25 + 0.125(Sales).
17-7 Actual Forecast Basis Pro Forma
17-8 a.
equity and
sliabilitie Total
= Accounts payable + Long-term debt + Common stock + Retained earnings
b. Assets/Sales (A0*/S0) = $1,200,000/$2,500,000 = 48%.
466
Answers and Solutions
Chapter 17: Financial Planning and Forecasting
AFN = (A0*/S0)(S) – (L0*/S0)(S) – MS1(1 – Payout) – New common stock
Alternatively, using the forecasted financial statements:
Forecast Additions (New 2016
2015 Basis Financing, R/E) Pro Forma
17-9 S2015 = $2,000,000; A2015 = $1,500,000; CL2015 = $500,000; NP2015 = $200,000; A/P2015 =
$200,000; Accrued liabilities2015 = $100,000; A0*/S0 = 0.75; PM = 5%; (1 – Payout) = 40%; so
AFN = 0, S = ?
17-10 Sales = $320,000,000; gSales = 12%; Rec. = $9.25 + 0.07(Sales).
Chapter 17: Financial Planning and Forecasting
Answers and Solutions
467
17-11 Sales = $110,000,000; gSales = 5%; Inv. = $9 + 0.0875(Sales).
17-12 a. Sales = $2,000,000,000; FA = $600,000,000; FA are operated at 80% capacity.
468
Answers and Solutions
Chapter 17: Financial Planning and Forecasting
17-13 a. Part II. Income Statements 2015 Change 2016
Sales $3,600,000.0 (1 + g) $3,960,000.0
Part III. Balance Sheets 2015 Change 2016
Assets
Cash $ 180,000.0 ( 1 + g) $ 198,000.0
Part V. Notes on Calculations
Assets in 2016 will change to this amount, from the balance sheet: $2,970,000.0
Chapter 17: Financial Planning and Forecasting
Answers and Solutions
469
b. AFN = $2,700,000/$3,600,000(Sales) – ($360,000 + $180,000)/$3,600,000(Sales)
17-14 a.
capacity
Full
=
whichat capacity of %
salesCurrent
=
75.0
000,36$
= $48,000.
b. Part II. Income Statements (in thousands) 2015 Change 2016
Sales $36,000.0 (1 + g) $45,000.0
Part III. Balance Sheets (in thousands) 2015 Change 2016
Assets
Cash $ 1,800.0 (1 + g) $ 2,250.0
470
Answers and Solutions
Chapter 17: Financial Planning and Forecasting
Assets in 2016 will change to this amount, from the balance sheet: $53,100.0
Chapter 17: Financial Planning and Forecasting
Comprehensive/Spreadsheet Problem
471
Comprehensive/Spreadsheet Problem
Note to Instructors:
The solution for 17-14 is provided at the back of the text; however, the solution to 17-13 is
not. Instructors can access the
Excel
file on the textbook’s website.
17-15 Problem 17-13 reworked:
a.
Part I. Inputs
2015 2016
Growth rate, g NA 10% Tax rate (T) 40%
Part II. Income Statements 2015 Change 2016
Sales $3,600,000.0 (1+ g) $3,960,000.0
Part III. Balance Sheets 2015 Change 2016
Assets
Cash $180,000 (1+ g) $198,000.0
Adjustable Inputs
Fixed Inputs
472
Comprehensive/Spreadsheet Problem
Chapter 17: Financial Planning and Forecasting
Part IV. Ratios and EPS 2015 2016E
Operating costs/Sales 91.10% 87.50%
Part V. Notes on Calculations
Assets in 2016 will change to this amount, from the balance sheet: $2,970,000.0
