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Financial Planning and Forecasting for Rologene Company: Module 2 Problem Set

A financial planning and forecasting assignment focused on Rologene Company.

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    Financial Planning and Forecasting for Rologene Company: Module 2 Problem Set, page 1Financial Planning and Forecasting for Rologene Company: Module 2Problem SetProblem Set for Module 2The Rologene Company200X Balance SheetAssetsLiabilitiesAccounts Payable35,000Cash40,000Accruals25,000Marketable Securities10,000Current Note Payable20,000Accounts Receivable70,000Total Current Liabilities80,000Inventory80,000Bonds240,000Total Current Assets200,000Total Liabilities320,000Property Plant &Equipment220,000Retained Earnings40,000Total Assets420,000Common Stock60,000Total Liabilities and Equity420,000Other Information:•200X sales = $800,000•200X profit margin = 5%•200X payout ratio = 35%Assumptions for 200Y:•Expected change in sales (ΔS) = $200,000•200X profit margin and payout ratios will be in effect in 200Y•Property, Plant, and Equipment (fixed assets) are expected toincrease by $90,000•Depreciation expense for 200Y = $20,000•Company holds marketable securities in a semi-permanent savingsaccount•The Current Note Payable will not be rolled-over and is to be paidoff in year 200Y1.Prepare the EFN equation for the Rologene Company using the information above.Show your work, label your computations and clearly mark your answer.To calculate the External Financing Needed (EFN), we use the following equation:Given the data, here's how we break it down:

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    Financial Planning and Forecasting for Rologene Company: Module 2 Problem Set, page 2

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    Financial Planning and Forecasting for Rologene Company: Module 2 Problem Set, page 31.Determine the Change in Assets and Liabilities:The EFN is primarily driven by changes in assets and liabilities. However, in this case, weassume the company's sales and other operations are growing, so we consider thegrowth rateinassets and liabilities. We need to assess thecurrent assetsandcurrent liabilitiesto calculate theEFN.Step-by-Step:•Total Assets= $420,000•Total Liabilities= $320,000•Equity (Retained Earnings + Common Stock)= $40,000 + $60,000 = $100,000So, the total equity is $100,000.•Current Assets= $200,000 (from cash, marketable securities, accounts receivable,inventory)•Current Liabilities= $80,000 (from accounts payable, accruals, current note payable)Now, if the company needs to maintain a proportional relationship between assets and liabilities,we need to calculate the growth required.2.EFN Calculation:If the company plans to increase its assets (say, due to projected sales growth), the EFN formulawould look like this:Assuming the company expects asales growth rateof "X%" (not provided, but usually derivedfrom projections), this will affect both assets and liabilities. Without the specific growth rate, wecan't calculate EFN exactly but the general formula would be:If we had a projected growth rate, say 10%, we would multiply the current assets and liabilitiesby 1.10 and then subtract from the current liabilities and equity.

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