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Entrepreneurship Strategy Activity 2 AssignmentApril 2, 2021Principals of Management assignment helpApril 2, 2021 You have been tasked with preparing and presenting a 5 year forecast to upper management. Select a publicly traded retailer who has at least the last three years of financial statements publicly available. Use those financial statements and the assumptions listed below. If further assumptions need to be made, make reasonable assumptions and list both the assumption and your logic within the report itself.TaskYour deliverable will be a Forecasting Report providing a 5 year forecast of the balance sheet and income statement to upper management. You have been reminded that, executives are extremely busy; therefore you will need to keep the executive summary which shall accompany your schedules to a maximum of two pages.Income Statement Forecast Assumptions:SalesAssume that sales will grow 4.0% each year from Year +1 through Year +5.Cost of Goods SoldAssume that the cost of goods sold to sales percentage will be 75.0% for Year +1 to Year +5.Selling and Administrative ExpensesAssume that the selling and administrative expenses will average 19.0% of sales for Year +1 to Year +5.Interest IncomeAssume the Company will earn interest income based on a 2.6% interest rate on average cash balances (that is, the sum of beginning and end- of-year cash balances divided by 2) for Year +1 through Year +5.Interest ExpenseIf applicable, assume a 4.2% interest rate for all outstanding borrowing (short-term and long-term debt, including capital leases, and the current portion of long-term debt) for the Company for Year +1 through Year +5. Compute interest expense on the average amount of interest-bearing debt outstanding each year. (Note: Projecting the amount of interest expense must await projection of the interest-bearing debt accounts on the balance sheet.)Income Tax ExpenseCompute the average effective income tax rate for the past three years and assume your companys effective income tax rate remains constant (@ the three year average) for Year +1 through Year +5. (Note: Projecting the amount of income tax expense must await computation of income before taxes.)Balance Sheet Forecast Assumptions:CashUse the cash as the flexible financial account to equate total assets with total liabilities plus shareholders equity. Projecting the amount of cash must await projections of all other balance sheet amounts.Accounts ReceivableAssume that accounts receivable will continue to turnover at the same rate and increase at the growth rate in sales.InventoriesAssume that ending inventory will continue to be equal to 44 days of cost of goods sold, in Year +1 to Year +5.Prepaid ExpensesAssume that prepayments will grow at the growth rate in sales.Property, Plant, and EquipmentCompute the average property, plant and equipment additions over the previous three years. Assume that property, plant, and equipment will continue to grow at the same rate (or dollar amount) each year from Year +1 through Year +5.Accumulated DepreciationAssume the Company recognizes a full year of depreciation on new property, plant, and equipment in the first year of service.Accounts PayableAssume that ending accounts payable will approximate 40 days of inventory purchases in Years +1 to +5. To compute the ending accounts payable balance using a 40-day turnover period, remember to add the change in inventory to the cost of goods sold to obtain the total amount of credit purchases of inventory during the year.Accrued LiabilitiesAssume that income taxes payable and deferred tax assets and liabilities grow at 3.0% per year in Year +1 through Year +5.Short-Term Debt, Current Maturities of Long-Term Debt, Capital Leases, and Long- Term DebtIf your Company has debt then assume the short-term debt, current maturities of long-term debt, and long-term debt will grow at 3.0% per year in Year +1 through Year +5.Common Stock and Additional Paid-in CapitalAssume that common stock and additional paid-in capital will continue to be 2.0% of total assets for Year +1 through Year +5.Retained EarningsAssume that Company will maintain a policy to pay dividends equivalent to 30% of net income attributable to Company shareholders in Year +1 through Year +5CashAssume the Company uses cash as the flexible financial account to balance the balance sheet. The resulting cash balance each year should be the total amount of liabilities and shareholders equity minus the projected ending balances in all non-cash asset accounts.Section A: Criteria Design a spreadsheet and prepare a set of financial statement forecasts for your selected Company for Year +1 to Year +5 using the assumptions that were provided. Project the amounts in the order presented (unless indicated otherwise) beginning with the income statement and then the balance sheet. For this portion of the problem, assume that the Company will exercise its financial flexibility with the cash and cash equivalents account to balance the balance sheet. Assume your Companys dividend policy is to payout 30% of net income. Determine the total amount of dividends the Company could pay each year under this scenario. Identify one potential benefit that increased dividends could create for the financial management of the Company. Include these benefits as part of the executive summary in Part 5. Calculate and compare the return on common equity for the Company using the forecast amounts determined in Requirements 1 for Year +1 to Year +5. Executive Summary of results (not to exceed 2 pages) “Is this question part of your assignment? We Can Help!”
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