Using the percentage of sales forecast method fill in the chart below. Sales are forecasted at….
Using the percentage of sales forecast method fill in the chart below. Sales are forecasted at $100,000,000 for Year 2. The debtholders of the company have two covenants: (1) a minimum 1:1 current ratio and (2) a maximum 0.5:1 long-term debt to equity ratio. The company does not want to issue common stock and prefers to issue long-term debt. It pays no dividends. (10 marks).
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Forecast (7 marks) |
Year 1 |
% of Sales Method |
Year 2 |
|
Sales COGS |
50,000,000 (32,000,000) |
100,000,000 |
|
|
Gross margin |
18,000,000 |
||
|
Fixed |
(4,000,000) |
||
|
EBT |
14,000,000 |
||
|
Taxes |
-4,200,000 |
||
|
Net Income |
9,800,000 |
||
|
Current assets Long-term assets |
11,000,000 39,000,000 |
||
|
Total |
50,000,000 |
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|
Current liabilities |
9,000,000 |
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Long-term debt |
12,700,000 |
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|
Common stock |
18,500,000 |
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Retained earnings |
9,800,000 |
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|
Total |
50,000,000 |
||
|
Current ratio |
1.222 to1 |
||
|
Long-Term debt to equity ratio |
0.449 to 1 |
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|
Sustainable Growth Rate |
52.973% |
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(3 marks for answers below):
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Using the percentage of sales forecast method fill in the chart below. Sales are forecasted at…
