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1) BIKE-WITH-US CORPORATION reported the following for 2018. Sales $325,000 Cost of goods $200,000 Operating Costs...

1) BIKE-WITH-US CORPORATION reported the following for 2018. Sales $325,000 Cost of goods $200,000 Operating Costs 85,000 Depreciation 10,000 Interest 5,000 Taxes 6,000 Net Income 15,000 The company forecasts the following for 2019: Sales: 10% increase YOY COGS: remain same % of sales G&A expenses: remain same % of sales Depreciation: fixed Interest expenses: fixed Tax rate: 25%

Build a 2019 income statement forecast with the info.

2) BIKE-WITH-US CORPORATION had a book value of $100,000 in 2018 and It paid out 3,000 dividend

a) What was its Retention rate?

b) Calculate its sustainable growth rate.

3) A venture has the following assumptions for 2019: Revenues increase from $9,00,000 to $10,000,000 Receivables are usually about 10% of revenues; Inventory historically equals 15% of revenues, Payables are usually 5% of revenues What’s its Additional Financing Need (AFN) for 2019?

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Answer #1

1) Income statement for 2019:

Sales (325000 + 10%) = 357500

Less COGS (200000 + 10%) = 220000

Less Operating cost (85000 + 10%) = 93500

Less Depriciation (fixed) = 10000

Less Interest (fixed) = 5000

Profit before tax. = 29000

Tax @ 25% (29000 * 25%) = 7250

Net profit. = 21750

2) Profit retained = Net profit - Dividend = 21750 - 3000 = 18750

a) Retention ratio = Profit retained / Book value = 18750 / 100000 = 0.1875 or 18.75%

b) Sustainable growth rate = Return on equity * retention ratio

Sustainable growth rate = (3000/100000) * 0.1875

Sustainable growth rate = 0.03 * 0.1875 = 0.0056 or 0.56%

3) Revenue = 10,00,000,

Receivable = 10,00,000 * 10% = 1,00,000 ,

Inventory = 10,00,000 * 15% = 1,50,000

Payables = 10,00,000 * 5% = 50,000

Additional financing needed = Recievables + Inventory - Payables = 100000 + 150000 - 50000

Additional financing nedeed = 200000

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