# 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

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)

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