Spreadsheet Problem

In: Business and Management

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Cumberland Industries' financial planners must forecast the company's financial results for the coming year. The forecast for many items will be based on sales, and any additional funds needed will be obtained as notes payable.

a. Assuming the historical trend continues, what will sales be in 2010? Base your forecast on a spreadsheet regression analysis of the 2004-2009 sales data above, and include the summary output of the regression in your answer. By what percentage are sales predicted to increase in 2010 over 2009? Is the sales growth rate increasing or decreasing?

Here are the company's historical sales. Hint: Use the Trend function to forecast sales for 2010.

Year Sales Growth Rate
2004 129,215,000
2005 180,901,000 40.0%
2006 235,252,000 30.0%
2007 294,065,000 25.0%
2008 396,692,000 34.9%
2009 455,150,000 14.7%
2010 515,465,267

% Increase in Predicted Sales for 2010 over 2009:

2009 Sales 455,150,000
2010 Sales 515,465,267

% increase 13.25% Note: This growth rate has been declining over time.

b. Cumberland’s management believes that the firm will actually experience a 20 percent increase in sales during 2010. Construct 2010 pro forma financial statements. Cumberland will not issue any new stock or long-term bonds. Assume Cumberland will carry forward its current amounts of short-term investments and notes payable, prior to calculating AFN. Assume that any Additional Funds Needed (AFN) will be raised as notes payable (if AFN is negative, Cumberland will purchase additional short-term investments). Use an interest rate of 9 percent for short-term debt (and for the interest income on short-term investments) and a rate of 11 percent for long-term debt. No interest is earned on cash. Use the beginning of year debt balances to calculate net interest expense. Assume that dividends grow at an 8 percent rate.

Key Input…...

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