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Managerial Finance for Financial Forecasting

Problem 4. Financial Forecasting

This problem has two parts.

Uncle Sal, our intrepid accountant, has recommended the pruchase of a small business to his mother, Granny. The small business has the following
sales projections:

Year Sales in Thousands
1 100
2 150
3 250
4 500
5 1000

Variable costs are as follows:

COGS 35% of sales figure
Selling Expenses 10% of sales
Taxes 35% of net Income

Fixed Expenses include:

Accounant $10,000 per year
Guido's Fee $12,000 per year
Rent $15,000 per year
Interest $6,000 per year
Depreciation $3,500 per year

Semi-fixed costs include:

Labor $5000 plus 10% of sales

4a. Create a pro-forma income statement based on this information for the five year timeframe. (20 points)

4b. Should Granny take Sal's advise for this opportunity? (5 points)

Solution Summary

The solution examines managerial finances for financial forecasting.