ACCOUNTING AND FINANCE

TUGAS KELOMPOK #3

CHAPTER 6 FINANCIAL PLANNING AND FORECASTING

Disusun Oleh : Kelompok 3

1. Adam Rifa’i -- 19REG76002

2. FLORENTINA – 19REG67052

3. Nadhila Hakim – 19REG76093

4. Faizal Ardiansyah – 19REG76043

5. Riskika Amelia – 19REG76120

Pra MBA Angkatan 76 Kelas C

Magister Manajemen Fakultas Ekonomika dan Bisnis

UNIVERSITAS GADJAH MADA

6.9

SALES INCREASE Pierce Furnishings generated $2 million in sales during 2015, and its year-end total
assets were $1.5 million. Also, at year-end 2015, current liabilities were $500,000, consisting of
$200,000 of notes payable, and $200,000 of account payable, and $100,000 of accrued liabilities.
Looking ahead to 2016, the company estimates that its assets must increase by $0.75 for every $1.00
increase in sales. Pierce’s profit magin 5%, and its retention ratio is 40%. How large of a sales increase
can the company achieve without having to raise funds externally?

Given:

• Pierce Furnishings’s sales (2015): $2 million

• Total assets: $1.5 million

• Current liabilities: $500,000 ($200,000 notes payable; $200,000 accounts payable; $100,000
accrued liabilities)

• 2016  its assets must increase by $0.75 for every $1.00 increase in sales

• Profit margin: 5%

• Retention ratio: 40%

Question:

How large of a sales increase can the company achieve without having to raise funds externally?
(AFN/additional fund needed?)

Formula:
Projected Spontaneous Increase in
Increase in - increase in - retained
Additional Fund Needed (AFN) =
assets liabilities earnings

Where:

A0* = Aset awal (2015)

S0 = Sales awal (2015)

∆S = Selisih Sales (sales 2016 – sales 2015)

L0* = Liabilities 2015

MS1 = Margin Sales

(1 – payout) = Retention ratio

Answer:

 Sales 2016 = (sales 2015 x $1) + sales 2015

= ($2 million x $1) + $2 million

= $2 million + $2 million

= $4 million

 Margin sales = profit margin x sales 2016

= 0.05 x $4 million

= $200,000

 AFN = ( A0*/ S0 ) ∆S - ( L0*/S0 ) ∆S – MS1 (1 – payout)

AFN = ( $1.5m/ $2m ) $2m - ( $300,000/$2m ) $2m – (0.05 x $4m) 0.4
AFN = $1.5m - $300,000 - $80,000
AFN = $1,120,000

6.11
REGRESSION AND INVENTORIES Charlie’s Cycles Inc. has $110 million in sales. The company expects
that its sales will increase 5% this year. Charlie’s CFO uses a simple linear regression to forecast the
company’sinventory level for a given level of projected sales. On the basis of recent history, the
estimated relationship between inventories and sales (in millions of dollars) is as follows:

Inventories = $9 + 0.0875 (Sales)

Given the estimated sales forecast and the estimated relationship between inventories and sales, what
are your forecasts of the company’s year-end inventory level and its inventory turnover ratio?

To compute : Sales forecast year ended inventory and inventory turnover ratio.
Sales Forecast : The management generally takes 5 years financial records and then studies it and
decided the amount of turnover for the current and up coming years. This predicted turnover is known
as the sales forecast.
Sales : $110.000.000
Increase in Sales : 5%

 Sales for the current year

= $110.000.000 x (1+5%)
= $110.000.000 x 1,5
= $115.500.000

 Beginning balance of inventories

= $9.000.000 + 8,0875 (sales)
= $9.000.000 + 0,0875 ($110.000.000)
= $9.000.000 + $9.625.000
= $18.625.000

 Ending balance of inventories

= $9.000.000 + 8,0875 (sales)
= $9.000.000 + 0,0875 ($115.500.000)
= $9.000.000 + $10.106.250
= $19.106.250

 Inventory turnover ratio (on the basis of average inventories)

= Current years sales / Average inventory for the years
= $115.500.000 / (($18.625.000 + $19.106.250) / 2))
= $115.500.000 / $28.178.125
= 4.1 Times

 Inventory turnover ratio (on the basis of ending inventory)

= current year sales/ending balance of inventories
= $115.500.000 / $19.106.250
= 6.0 Times

6.12

EXCESS CAPACITY Edney Manufacturing has $2 billion in sales and $0,6 billion in fixed assets. Currently
the company’s fixed assets are operating at 80% of capacity.

a) What level of sales could edney have obtained if it had been operating at full capacity?

b) What is Edney’s target fixed assets / sales ratio?

c) If Edney’s sales increase 30%, how large of an increase in fixed assets will the company need to meet
its target fixed assets / sales ratio?
Given :

• Edney manufactuing sales : $2 billion

• FA : $0,6 billion

• FA are operating at 80% of capacity

Question :

a) What level of sales could Edney have obtained if it had been operating at full capacity?

b) What is Edney’s taget fixed assets / sales ratio?

c) If Edney’s sales increase 30%, how large of an increase in fixed assets will the company need to meet
its target fixed assets / sales ratio?

Answer :

a) Sales = 2.000.000.000

FA = 600.000.000

FA operated = 80% dari kapasitas

Full capacity sales = Actual sales / (FA yang mengoperasikan 80% dari kapasitas)

= 2.000.000.000 / 0,80

= 2.500.000.000

b) Target FA / sales ratio = 600.000.000 / 2.500.000.000

= 0,24

= 24%

Sales increase 30% = 2.000.000.000 x 1,30 = 2.600.000.000

c) Berapa kenaikan fixed assets yang dibutuhkan perusahaan untuk mencapai target fixed assets /
sales rationya?

ΔFA = 0,24 x (sales increase – full capacity)

= 0,24 x (2.600.000.000 – 2.500.000.000

= 24.000.000

Jadi ketika penjualannya naik hingga 2.600.000.000, Edney harus meningkatkan FA sebesar 24.000.000
6-13

Suppose that in 2016, sales increase by 15% over 2015 sales. The firm currently has 100,000 shares
outstanding. It expects to maintain its 2015 dividend payout ratio and believes that its assets should grow
at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its
Operating costs/Sales ratio to 87.5% and increase its total debt-to-assets ratio to 30%. (It believes that its
current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2016 forecasted
total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its
before-tax cost of debt (which includes both short-term and long-term debt) is 12.5%. Assume that any
common stock issuances or repurchases can be made at the firm's current stock price of $45.

a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's
forecasted notes payable and long-term debt balances? What is the forecasted addition to retained
earnings?

b. If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in
sales will the additional financing requirements be exactly zero? In otherwords, what is the firm's
sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.)

Answer :

Morrissey Technologies Inc.'s

Income Statement
2015 2016
Particular Change
Amount ($) Amount ($)
Sales 3.600.000 (1+g) 3.960.000
Operating costs includes depreciation 3.279.720 0.875 3.465.000
EBIT 320.280 495.000
Interest 20.280 See notes 37.125
EBT 300.000 457.875
Taxes (40%) 120.000 EBT (T) 187.150
Net Income (NI) 180.000 274.725
Per Share Data :  
Common stock price 45.00 45.00
Earning per share (EPS) 180.000 275.000
Devidend per share (DPS) 108.000 164.835
Addition to retained earning 72.000 109.890

Morrissey Technologies Inc.'s

 Balance Sheet
2015 2016
Assets Change
Amount ($) Amount ($)
Current Assets:  
Cash 180.000 (1 + g) 198.000
Account Receivable 360.000 0.1 396.000
Inventories 720.000 0.1 792.000
Total Current Assets 1.260.000 1.386.000
Fixed Assets 1.440.000 (1 + g) 1.584.000
Total Assets 2.700.000 2.970.000
Liabilities and Equity  
Current Liabilities:  
Payable + Accruals 540.000 (1 + g) 594.000
Notes Payable 56.000 See notes 72.800
Total Current Liabilities 596.000 666.800
Long-term Debt 100.000 224.200
Total Liabilities 696.000 See notes 891.000
Owners' Equity:  
Common Stock 1.800.000 1.765.110
Retained Earnings 204.000 $109.890 313.890
Total Stockholders' Equity 2.004.000 2.079.000
Total Liabilities and Owners' Equity 2.700.000 2.970.000

A. Working Notes I

a) Calculation of forcasted notes payable for the year 2016.

Notes payable for 2015 are $ 56.000.

Company will raise notes payable by 30%.

Formula to calculate the forecasted notes payable for 2016,

Forcasted notes payable for 2016 = (Notes payable for 2015 + Increment in notes payable)

Substitute $56.000 for notes payable for 2015 and 30% for increment in notes payable.

Forcasted notes payable for 2016 = $ 56.000 + ($56.000 x 30%)

= $ 56.000 + $ 16.800
= $ 72.800

b) Calculation of addition to retained earnings for the year 2015.

Dividend paid for the year ended 2016 is $108.000 from,

Dividend = Dividend per share x Number of outstanding share
= $ 1.08 x 100.000
= $ 108.000

Net income for the year ended is $180.000.

Formula to calculate addition to retained earning,

Addition to retained earnings = Net income – Dividend paid

Substitute $ 180.000 for net income and $ 108.000 for dividend paid.

Addition to retained earnings = $ 180.000 - $ 108.000

= $ 72.000

c) Calculation of addition to retained earnings for the year 2016.

Substitute $ 180.000 for net income and $ 108.000 for dividend paid.

Addition to retained earnings = $ 274.725 - $ 164.835

= $ 109.890

d) Calculation of long-term debt for the year 2016.

 Total Liabilities = Total assets x Target debt ratio

= 2.970.000 x 30%
= $ 891.000
 Long-term debt = Total liabilities – Total current liabilities
= 891.000 - 666.800
= $ 224.200

B. Working Notes II
1. Cash (2016) = Cash in 2015 x (1 + Growth)
= 180.000 x (1 + 0.1)
= 180.000 x 1.1
= $ 198.000

2. Sales (2016) = Sales in 2015 x (1 + Growth)

= 3.600.000 x (1 + 0.1)
= 3.600.000 x 1.1
= $ 3.960.000

3. Payable & Accruals (2016) = Payable & Accruals 2015 x (1 + Growth)

= 540.000 x ( 1 + 0.1)
= 540.000 x 1.1
= $ 594.000

4. Fixed Assets (2016) = Fixed Assets 2015 x (1 + Growth)

= 1.440.000 x (1 + 0.1)
= 1.440.000 x 1.1
= $ 1.584.000

5. Total Stockholders' Equity (2016) = ( Assets 2016) (Target equity ratio)

= (Assets 2016) (1- Target debt ratio)
= (2.970.000) (1-0.3)
= (2.970.000) (0.7)
= $ 2.079.000

6. Common Stock (2016) = Total Stockholders' Equity – Retained earning

= 2.079.000 - 313.890
= $ 1.765.110

B. Growth Rate in Sales

 AFN = Projected Asset Increase – Spontaneous Liabilities Increase – Increase in Retained Earning

= (A0*/S0)Δ S – (L0*/S0)ΔS – MS1(1-Payout)

= [(Assets 2015/Sales 2015)(ΔSales)– (Liabilities 2015/Sales 2015)(ΔSales) – (Expected profit
margin x Retention ratio)]

$ 0 = [($2.700.000/$3.600.000)(ΔSales) – ($540.000/$3.600.000)(ΔSales) – (0.05)($3.600.000 +

ΔSales) (0.4)]

$ 0 = 0.75(ΔSales) – 0.15(ΔSales) – 0.02(ΔSales) - $72.000

$ 0 = 0.58(ΔSales) - $72.000

$ 72.000 = 0.58(ΔSales)

ΔSales = $ 124.138

ΔSales $ 124.138
Growth rate in sales = = = 3.45%
$ 3.600 .000 $ 3.600 .000