From the course: Financial Modeling and Forecasting Financial Statements
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Identifying the missing number
From the course: Financial Modeling and Forecasting Financial Statements
Identifying the missing number
- Okay, so how do we expect to pay for the new assets that we need to acquire for next year? Let's go back to that Han Company example. Now as a reminder, the initial assumptions are as follows. Sales are forecasted to increase 50% in year two. Net property, plant, and equipment will increase from $300 to $700. Loans payable will increase from $300 to $400. Gross profit percentage will increase from 30% to 32%. Other operating expenses as a percentage of sales will increase from 18.5% to 20.0%. The income tax rate will increase from 42.9% to 60.0%. And finally, dividends will double from $15 to $30. With these initial assumptions, we computed that the forecasted net income for year two is $42. We aren't too happy that this huge 50% sales increase is only going to increase net income by 5% from $40 in year one to $42 in year two, but hey that's where we are. Now let's look at the forecasted balance sheet. We will assume…
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