The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method

The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method in preparation for a more detailed planning exercise later in the month. The estimate is to assume a 10% growth in sales. All other line items are to be assumed to grow at the same rate except for fixed assets which is projected to increase by $88,000 due to an expansion program already underway. Approximate financial statements for the current year, 20X8, and a planning worksheet are shown below. The firm pays 9% interest on all of its debt. Assume the tax rate is a flat 25%. There are no plans for dividends or the sale of additional stock next year. Make a forecast of Coker’s complete income statement and balance sheet. Work to the nearest thousand dollars. (Hints: The easiest way to grow a number by 10% is to multiply it by 1.1 rather than taking 10% and adding. Do not grow subtotals. For example, to grow Revenue and COGS by 10%, round each to the nearest thousand and subtract for Gross Margin. Don’t grow interest, debt, or equity; use the debt/interest iteration technique.)


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Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks

Problem 16-19 (Ethics and the Manager) Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problem getting a loan to pay off his accounts payable—providing that on his most recent financial statements the current ratio was above 2.0, the acid-test ratio was above 1.0, and net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of his financial statements. Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company appear below:

AND SO ON

Required:
1. Based on the unaudited financial statements on the prior page and the statement made by the loan officer, would the company qualify for the loan?
2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. What advice would you give to Russ concerning the machine?

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