Forecast 2020 income statement and balance sheet using the percent of sales method and the following assumptions:
(1) sales in 2020 will be 12.5 million;
(2) tax rate keeps the same;
(3) each item that changes with sales will be the 2 year average percentage of sales;
(4) fixed asset will increase $1,000,000 with a 10 year straight line depreciation schedule with 0 salvage value;
(5) the common stock dividends will be $202,000;
(6) interest rate on short-term and long-term debt will be 9%;
(7) Cash, short-term investment will be the same as 2019;
(8) COGS, Selling G&A expenses, A/R, inventory, A/P, Accruals will change in proportion to sales;
(9) Notes payable and long-term debt will keep the same; and if there is borrowing need, the company will borrow from long-term debt;
(10) the company will not issue stocks in 2020.
Questions:
a) What is the additional funds needed in 2020? Is this a surplus or deficit or balanced? (Without iteration, or borrowing happens at last day of the year)
b) Assume that the AFN will be absorbed by long-term debt, set up an iterative worksheet to find total accumulated AFN (borrowing happens during the year)
c) Why accumulated AFN increases in part b)? Please explain the phenomenon.
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