Financial Forecasting and Planning Tut.

1. In 2018, Arab Co. reported sales of $35,500,000; cost of goods sold of $22,365,000; net
income of $4,082,500; current assets of $12,070,000; account receivables of $7,242,000;
inventory of $3,017,500; equity of $9,425,000. In 2019, sales increased by 25%.
Requires:
A) What is the level of account receivables in 2019?
B) What is the level of inventory in 2019?
Account receivables as percentage of sales in 2018 = 7,242,000 / 35,500,000 = 20.4%
Inventory as percentage of sales in 2018 = 3,017,500 / 35,500,000 = 8.5%
Sales in 2019 = 35,500,000 (1+25%) = $44,375,000
The level of account receivables in 2019 = 44,375,000 x 20.4% = $9,052,500
The level of inventory in 2019 = 44,375,000 x 8.5% = $3,771,875

2. In 2019, Beta Co. reported sales of $650 million; current assets of $195 million; fixed assets
of $130 million; spontaneous liabilities of $117 million, bonds of $120 million; common
equity of $88 million; net income of $78 million. The firm maintains the profit margin in
2020 as in 2019, the firm’s dividend policy is to pay 70% of its net income as cash dividend.
Beta Co. expects that its sales will increase in 2020 by 20%.
Using the pro-forma technique to calculate the followings:
A) The AFN in 2020
B) The external AFN in 2020
C) If Beta co. will finance any external AFN by issuing common stocks, what is its common
equity in 2020?
D) If Beta co. will finance any external AFN by issuing bonds, what is its bonds in 2020?

Total assets in 2019 = 195 + 130 = $325 million

Total assets as percentage of sales in 2019 = 325 / 650 = 50%
Spontaneous liabilities as percentage of sales in 2019 = 117 / 650 = 18%
Increased in sales = 650 x 20% = $130 million
Sales in 2020 = 650 + 130 = $780 million
Profit margin in 2019 = 78 / 650 = 12%
Increased in assets (2020) = 130 x 50% = $65 million
Increased in spontaneous liabilities (2020) = 130 x 18% = $23.4 million
AFN in 2020 = 65 – 23.4 = $41.6 million
 Net income in 2020 = 780 x 12% = $93.6 million
Retained earnings in 2020 = 93.6 (1-70%) = $28.08 million
External AFN = 41.6 – 28.08 = $13.52 million
Equity in 2020 = equity in 2019 + retained earnings inn 2020 + External AFN
Equity in 2020 = 88 + 28.08 +13.52 = $129.6 million
Bonds in 2020 = Bonds in 2019 + External AFN
Bonds in 2020 = 120 + 13.52 = $133.52 million

3. In the above exercise use the percentage of sales equation to calculate AFN and external
AFN
Total assets in 2019 = 195 + 130 = $325 million
Increased in sales = 650 x 20% = $130 million
Sales in 2020 = 650 + 130 = $780 million
Profit margin in 2019 = 78 / 650 = 12%

AFN = 130 130 = $41.6 million

EAFN = 130 130 780 12% 1 70%

EAFN = $13.52 million