Forecasting and Capital Structure

Part 5: Forecasting and Capital Structure

10. You’ve been asked to use the following historical sales information to forecast next year’s sales for Worldwide Widget Manufacturing, Inc. The actual sales for 2016 were $1,950,000.
Year: 2011 2012 2013 2014 2015
Sales $1,750,000 $2,000,000 $1,350,000 $2,250,000 $1,800,000

What would be next year’s forecast using the naïve approach and the average sales approach? What would be the MAPE using the naïve approach and the average sales approach?

11. After adding a new line of widgets, Worldwide Widget Manufacturing, Inc., expects all assets and current liabilities to shrink with sales. The company has sales for the year just ended of $20 million. The company also has a profit margin of 20 percent, a return ratio of 25 percent, and expected sales of $18 million next year. Worldwide Widget Manufacturing, Inc., shows the following on its balance sheet.
Assets Liabilities and Equity
Current assets $2,500,000 Current liabilities $1,250,000
Fixed assets $3,500,000 Long-term debt $1,500,000 Equity Equity $3,250,000
Total assets $6,000,000 Total liabilities and equity $6,000,000

What amount of additional funds (AFN) will Worldwide Widget Manufacturing, Inc.,
need from external sources to fund the expected growth? What does the AFN show?