An Excel spreadsheet containing R&E Supplies' 2012 pro forma finan- cial forecast as shown in Table 3.5 is available for download at www.mhhe.com/higgins10e. (Select Student Edition > Choose a Chapter > Files.) Using this spreadsheet, the information presented in the following list of figures, and the modified equations determined earlier in question 6, extend the forecast for R&E Supplies contained in Table 3.5 through 2013.
| R&E Supplies Assumptions for 2013 ($ thousands) |
|
Growth rate in net sales
|
30.0%
|
Tax rate
|
45.0%
|
|
Cost of goods sold/net sales
|
86.0%
|
Dividend/earnings after tax
|
50.0%
|
|
Gen., sell., & admin.
|
|
Current assets/net sales
|
29.0%
|
|
expenses/net sales
|
11.0%
|
Net fixed assets
|
$270
|
|
Long-term debt
|
$560
|
Current liabilities/net sales
|
14.4%
|
|
Current portion long-term debt
|
$100
|
|
|
|
Interest rate
|
10.0%
|
|
|
a. What is R&E's projected external financing required in 2013? How does this number compare to the 2012 projection?
b. Perform a sensitivity analysis on this projection. How does R&E's projected external financing required change if the ratio of cost of goods sold to net sales declines from 86.0 percent to
84.0 percent?
c. Perform a scenario analysis on this projection. How does R&E's projected external financing required change if a severe recession occurs in 2013? Assume net sales decline 5 percent, cost of goods sold rises to 88 percent of net sales due to price cutting, and current assets increase to 35 percent of net sales as management fails to cut purchases promptly in response to declining sales.