Prepare a financial forecast | Business & Finance homework help

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)