September – December 2023 Prepare a financial forecast

Business & Finance

You are the new financial manager of Northern Chemicals Ltd, a Kitale producer of specializedchemicals for use in fruit orchards. Yo are in the process of preparing a financial forecast for 2022. Thecompany’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 notsure about this. The interest rate on debt is 8%. The 2021 financial statements are shown below.2021 Balance Sheet (in millions) % of SalesCash and Securities $20 1%Accounts Receivable $240 12%Inventories $240 12%Total Current Assets $500Net Fixed Assets $500 25%Total Assets $1,000Accounts Payable and Accruals $100 5%Notes Payable $100Total Current Liabilities $200Long Term Debt $100Common Stock $500Retained Earnings $200Total Liabilities and Equity $1,0002021 Income Statement (in millions) % of SalesSales $2,000Variable Costs $1,200 60%Fixed Costs $700 35%EBIT $100Interest $16EBT $84Taxes(40%) $33.60Net Income $50.40Dividends(30%) $15.12Additions to Retained Earnings $35.28Required:a) Prepare a financial forecast for 2022 assuming that the company was operating at full capacityin 2021. (10 marks)b) Assuming that in 2021, fixed assets had been operated at only 75% of capacity and that sales isexpected to increase to $3,000 million and not $2,500 million in 2022, calculate the fixed assetsrequirement for 2022. Show all the workings. (10 marks)

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