A Financial Forecast

 

 

You are the new financial manager of Northern Chemicals Ltd, a Kitale producer of specialized
chemicals for use in fruit orchards. Yo are in the process of preparing a financial forecast for 2022. The
company’s sales revenue for 2021 was $ 2 billion, and the marketing department is forecasting a 25%
increase for 2022. You think that the company was operating at full capacity in 2021 but you are not
sure about this. The interest rate on debt is 8%. The 2021 financial statements are shown below.
2021 Balance Sheet (in millions) % of Sales
Cash and Securities $20 1%
Accounts Receivable $240 12%
Inventories $240 12%
Total Current Assets $500
Net Fixed Assets $500 25%
Total Assets $1,000
Accounts Payable and Accruals $100 5%
Notes Payable $100
Total Current Liabilities $200
Long Term Debt $100
Common Stock $500
Retained Earnings $200
Total Liabilities and Equity $1,000
2021 Income Statement (in millions) % of Sales
Sales $2,000
Variable Costs $1,200 60%
Fixed Costs $700 35%
EBIT $100
Interest $16
EBT $84
Taxes(40%) $33.60
Net Income $50.40
Dividends(30%) $15.12
Additions to Retained Earnings $35.28
Required:
a) Prepare a financial forecast for 2022 assuming that the company was operating at full capacity
in 2021. (10 marks)
b) Assuming that in 2021, fixed assets had been operated at only 75% of capacity and that sales is
expected to increase to $3,000 million and not $2,500 million in 2022, calculate the fixed assets
requirement for 2022. Show all the workings. (10 marks)

 

 

 

 

 

Sample Solution

Walking down any busy street or taking public transportation, you are going to encounter a multitude of people wearing headphones. Music is a form of art and has been around for humans since the early times. The key elements to music include but are not limited to pitch, tempo, rhythm, and dynamics. Music has immense worth in today’s society and many can agree it is significant in their lives. It drastically has changed due to the digital revolution. The most common way to listen to music is by streaming it through technology. In our cars, computers, radio or phones, listening has become more intimate. The modern-day world is a noisy place. Most plug their ears with headphones to tune everything around them out. When listening to a rhythm our minds and bodies begin to sync with it. A very fast, upbeat tempo induces excitement while slow paced and melodic can be relaxing and tranquil. Music also has the ability to trigger a range of emotions spanning from anger to empowerment and optimism. In addition to emotions, music has the capability to help individuals focus before they perform a diverse task. Research has shown how tuning into a selected song can drastically change one’s mood and in turn, their performance. There is a positive correlation between mood and performance. In many ways, music engages the brain, by capturing one’s emotion and memory. It is reported music affecting the brain is also a physical experience, due to the release of the hormone oxytocin (Keeler & Roth, 2015). It can help change the state of mind. Although it doesn’t make it easier, it can make the performance more enjoyable. Problem Statement According to “Music and Memory: Effects of listening to music while studying in college” listening to music while studying is common behavior for college students. This study explores how different music block the outside world creating a better learning environment. The researchers investigated the ability to learn a language and how fast they are able to learn it in an environment of music or silence. The subjects who studied a foreign language with music had a better retention rate than those who studied without. A study conducted by Hallman, Price, and Katsarou, (2002) tested the effects of calming and relaxing music on children cognitive skill. They found a better performance on task with music than without. Counterarguments believe that music can erode your cognitive intelligence. in another study, students were given a choice to listen to music or not. Majority of the students chose to do without it because they believe it would hinder their ability to study (Dolegui, 2013). Listening to music may make someone feel better but may not help them learn something new. It can conflict with the material they are trying to learn. The most common way to listen to music is through headphones. Some arguments state that headphones are making people antisocial. Many people plug their ears to create a bubble and maximize concentration. This problem has been brought to attention because there are

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