a. Identify the steps necessary to financially plan and forecast for 2005, 2006, and 2007,
In order to plan the forecast, we start with a base year, for which the actual figures are available, which is year 2002 here. The next step is to identify the independent variables. These are those variables, whose value is to be ascertained from outside and are not dependant on any other variables. In this case the independent variables identified are Growth Rate, Tax Rate, Interest Rate, NWC Sales Ratio, Fixed Assets /Sales, COGS/Sales, Payout Ratio. Using these, all the other figures can be worked out. The growth rate gives the new sales, COGS/Sales ratio will give us the cost of goods sold. EBIT is Sales ? Cost of Goods Sold. The interest expense is dependant on the amount of debt and the interest rate. The tax rate is given and so we get the net income. On the balance sheet, the NWC Sales ratio and Fixed Assets/Sales will give us the NWC and fixed assets, given the level of sales. The remaining items will be debt and equity. These will depend on the assumptions made as has been done later.
b. Project future years using the growth rate assumptions in the Mini-case,
The projections are in the attached file. For the interest expense, the opening debt balance is taken. This is because, if the closing balance is taken, that will have feedback effects. The closing balance will given an interest amount, this will change the net income which will change the debt amount and that will change the interest. So there would be circular effect.
c. Determine what type and amount of financing may be required, taking into account the impac ...