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Chapter 3 Problem 15 - Aquatic Supplies: Income Statement (In $ Millions) Assumptions
Chapter 3 Problem 15 - Aquatic Supplies: Income Statement (In $ Millions) Assumptions
Chapter 3 Problem 15 - Aquatic Supplies: Income Statement (In $ Millions) Assumptions
15.
Below are the 2008 financial statements for Aquatic Supplies Co. Also appearing are managements forecasts for how individual f
future. The company expects sales to grow 12% next year. Aquatic Supplies finances all of its needs with 10-year long-term debt
of the year is added to the cash balance.
a. Prepare a spreadsheet to estimate Aquatic Supplies 's 2009 need for external funding assuming long-term debt and interest expense
b. Modify your spreadsheet forecast in part (a) to capture the interdependence between the loan and interest expense. That is, switch
and include the necessary loan and added interest expense in your forecast.
c. Is the required loan in part (b) equal to the required loan you calculated in part (a)? Why are they different?
d. Perform a sensitivity analysis of Aquatic Supplies Co.s external financing needs as determined in part (b). Assume sales grow at 1
bank loan increase as sales go from 12% to 17%?
e. Perform a scenario analysis on the companys projection as determined in part (b). Assume sales grow 20%, the cost of goods sold
of sales to 3%, and accounts receivable fall from 13% of sales to 10%. What happens to the loan need in this scenario relative to y
f. Return now to the original assumptions and extend your projections in part (b) through 2013. Continue to assume that all external
interest and any excess cash will add to the companys cash balance. What are your projected values for long-term debt and cash a
g. Perform a scenario analysis on your 5-year projection in part (f). Assume growth in sales is 10%, the cost of goods sold is 41% of
administrative expenses are 50% of sales. What are your projected values for long-term debt and cash balance in 2013?
582.762
240.828
12%
39%
Gross Profit
Selling, General, & Administrative Exp.
341.934
257.507
49%
84.427
25.221
30%
Operating Profit
Interest Expense
59.206
16.430 initially constant
Pretax Income
Total Income Taxes
42.776
14.971
Net income
Assumptions
35%
27.805
7.152
70.538
2%
13%
Inventories
Prepaid Expenses
Other Current Assets
Total Current Assets
39.033
9.339
27.076
153.138
5%
no change
6%
81.648
9.415
24.642
268.843
15%
no change
5%
36.951
31.206
3.663
71.820
6%
5%
no change
LIABILITIES
Accounts Payable
Accrued Expenses
Other Current Liabilities
Total Current Liabilities
EQUITY
Common Stock
Capital Surplus
Retained Earnings
Less: Treasury Stock
1.702
55.513
118.729
158.059
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
17.885
$
268.843
no change
no change
no dividends paid so all income is retained
no change
o. Also appearing are managements forecasts for how individual financial statement items will vary in the
uatic Supplies finances all of its needs with 10-year long-term debt at 10% interest, while excess cash at the end
d for external funding assuming long-term debt and interest expense remain at their 2008 levels.
dependence between the loan and interest expense. That is, switch your spreadsheet to "manual calculation"
l financing needs as determined in part (b). Assume sales grow at 17% instead of 12%. How much does the
ermined in part (b). Assume sales grow 20%, the cost of goods sold is 38% of sales, inventory falls from 5%
o 10%. What happens to the loan need in this scenario relative to your answer in part (b)?
ions in part (b) through 2013. Continue to assume that all external funding needs will be met with debt at 10%
ance. What are your projected values for long-term debt and cash and equivalents in 2013?
. Assume growth in sales is 10%, the cost of goods sold is 41% of sales, and selling, general and
cted values for long-term debt and cash balance in 2013?
lies Co.
n $ millions)
Assumptions
growth in sales
percentage of sales
percentage of sales
initially constant
$ millions)
percentage of sales
percentage of sales
percentage of sales
percentage of sales
percentage of sales
percentage of sales
nitially constant
percentage of sales
4/13/2012
4/13/2012
2008
Sales
Cost of Goods Sold
(b) Pro-Forma
2009 including
(e) Scenario
inter(d) Sensitivity
analysis
dependencies analysis 2009
2009
582.762
240.828
12%
39%
652.693
254.550
652.693
254.550
681.832
265.914
699.314
265.739
Gross Profit
Selling, General, & Administrative Exp.
341.934
257.507
49%
398.143
319.820
398.143
319.820
415.917
334.097
433.575
342.664
84.427
25.221
30%
78.323
29.371
78.323
29.371
81.820
30.682
90.911
31.469
Operating Profit
Interest Expense
59.206
16.430
initially constant
48.952
16.430
48.952
18.636
51.137
19.482
59.442
15.763
Pretax Income
Total Income Taxes
42.776
14.971
35%
32.522
11.383
30.316
10.611
31.656
11.080
43.679
15.288
Net income
Assumptions
(a) Pro-Forma
2009 ignoring
interdependencies
27.805
21.139
19.705
20.576
28.391
4/13/2012
13.054
84.850
32.635
9.339
39.162
179.039
81.648
9.415
24.642
268.843
15%
no change
5%
36.951
31.206
3.663
71.820
6%
5%
no change
39.162
32.635
3.663
75.459
39.162
32.635
3.663
75.459
40.910
34.092
3.663
78.664
41.959
34.966
3.663
80.588
157.720
21.418
250.958
initially constant
3%
157.720
19.581
252.760
186.363
19.581
281.403
194.816
20.455
293.935
157.630
20.979
259.197
1.702
55.513
1.702
55.513
1.702
55.513
1.702
55.513
139.868
158.059
138.434
158.059
139.305
158.059
147.120
158.059
97.904
9.415
32.635
318.993
no change
no change
no dividends paid so all
118.729
income is retained
158.059
no change
TOTAL EQUITY
2%
13%
5%
no change
6%
1.702
55.513
Retained Earnings
Less: Treasury Stock
7.152
70.538
39.033
9.339
27.076
153.138
13.054
84.850
32.635
9.339
39.162
179.039
97.904
9.415
32.635
318.993 $
13.637
88.638
34.092
9.339
40.910
186.615
13.986
69.931
20.979
9.339
41.959
156.195
102.275
9.415
34.092
332.397
104.897
9.415
34.966
305.473
17.885
39.024
37.590
38.461
46.276
268.843
291.784
318.993
332.397
305.473
27.209
Solution to part f.
Aquatic Supplies Co.
Income Statement (in $ millions)
Pro Forma Forecasts 2009 - 2013
2010
2011
2012
2009
2013
2008
Assumptions
$ 582.762
240.828
12%
39%
652.693
254.550
731.017
285.096
818.739
319.308
916.987
357.625
1,027.026
400.540
Gross Profit
Selling, General, & Administrative Exp.
341.934
257.507
49%
398.143
319.820
445.920
358.198
499.431
401.182
559.362
449.324
626.486
503.243
84.427
25.221
30%
78.323
29.371
87.722
32.896
98.249
36.843
110.038
41.264
123.243
46.216
Operating Profit
Interest Expense
59.206
16.430
initially constant
48.952
18.636
54.826
18.801
61.405
18.841
68.774
18.733
77.027
18.446
Pretax Income
Total Income Taxes
42.776
14.971
35%
30.316
10.611
36.025
12.609
42.564
14.897
50.041
17.514
58.581
20.503
Sales
Cost of Goods Sold
Net income
27.805
19.705
23.416
27.667
32.527
38.078
Retained Earnings
Less: Treasury Stock
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
7.152
70.538
39.033
9.339
27.076
153.138
2%
13%
5%
no change
6%
13.054
84.850
32.635
9.339
39.162
179.039
14.620
95.032
36.551
9.339
43.861
199.403
16.375
106.436
40.937
9.339
49.124
222.211
18.340
119.208
45.849
9.339
55.019
247.756
20.541
133.513
51.351
9.339
61.622
276.366
81.648
9.415
24.642
$ 268.843
15%
no change
5%
97.904
9.415
32.635
318.993
109.652
9.415
36.551
355.022
122.811
9.415
40.937
395.374
137.548
9.415
45.849
440.568
154.054
9.415
51.351
491.186
36.951
31.206
3.663
71.820
6%
5%
no change
39.162
32.635
3.663
75.459
43.861
36.551
3.663
84.075
49.124
40.937
3.663
93.724
55.019
45.849
3.663
104.532
61.622
51.351
3.663
116.636
157.720
21.418
250.958
initially constant
3%
186.363
19.581
281.403
188.010
21.930
294.015
188.414
24.562
306.701
187.327
27.510
319.368
184.462
30.811
331.908
1.702
55.513
no change
no change
no dividends paid
so all income is
retained
no change
1.702
55.513
1.702
55.513
1.702
55.513
1.702
55.513
1.702
55.513
138.434
158.059
161.851
158.059
189.517
158.059
222.044
158.059
260.122
158.059
37.590
61.007
88.673
121.200
159.278
440.568
$ 491.186
118.729
158.059
17.885
$ 268.843
318.993
355.022
395.374
Solution to part g.
Aquatic Supplies Co.
Income Statement (in $ millions)
Pro Forma Forecasts 2009 - 2013
2010
2011
2012
2009
2013
2008
Assumptions
$ 582.762
240.828
10%
41%
641.038
262.826
705.142
289.108
775.656
318.019
853.222
349.821
938.544
384.803
Gross Profit
Selling, General, & Administrative Exp.
341.934
257.507
50%
378.213
320.519
416.034
352.571
457.637
387.828
503.401
426.611
553.741
469.272
84.427
25.221
30%
57.693
28.847
63.463
31.731
69.809
34.905
76.790
38.395
84.469
42.234
Operating Profit
Interest Expense
59.206
16.430
initially constant
28.847
19.635
31.731
20.988
34.905
22.434
38.395
23.979
42.234
25.630
Pretax Income
Total Income Taxes
42.776
14.971
35%
9.212
3.224
10.743
3.760
12.471
4.365
14.416
5.046
16.604
5.812
Sales
Cost of Goods Sold
Net income
$ 27.805
5.988
6.983
8.106
9.370
10.793
7.152
70.538
39.033
9.339
27.076
153.138
2%
13%
5%
no change
6%
12.821
83.335
32.052
9.339
38.462
176.009
14.103
91.668
35.257
9.339
42.309
192.676
15.513
100.835
38.783
9.339
46.539
211.010
17.064
110.919
42.661
9.339
51.193
231.177
18.771
122.011
46.927
9.339
56.313
253.360
81.648
9.415
24.642
$ 268.843
15%
no change
5%
96.156
9.415
32.052
313.632
105.771
9.415
35.257
343.119
116.348
9.415
38.783
375.556
127.983
9.415
42.661
411.236
140.782
9.415
46.927
450.484
LIABILITIES
Accounts Payable
Accrued Expenses
Other Current Liabilities
Total Current Liabilities
$ 36.951
31.206
3.663
71.820
6%
5%
no change
38.462
32.052
3.663
74.177
42.309
35.257
3.663
81.229
46.539
38.783
3.663
88.985
51.193
42.661
3.663
97.517
56.313
46.927
3.663
106.903
157.720
21.418
250.958
initially constant
3%
196.351
19.231
289.759
209.881
21.154
312.264
224.339
23.270
336.594
239.790
25.597
362.904
256.300
28.156
391.359
1.702
55.513
no change
no change
1.702
55.513
1.702
55.513
1.702
55.513
1.702
55.513
1.702
55.513
124.717
158.059
131.700
158.059
139.806
158.059
149.176
158.059
159.969
158.059
23.873
30.856
38.962
48.332
59.125
Retained Earnings
Less: Treasury Stock
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
no dividends paid
so all income is
118.729
retained
158.059
no change
17.885
$ 268.843
313.632
343.119
375.556
411.236
450.484