- Question 2 15 Marks 30 Minutes Freddy Van Vleet Technologies Inc Fvvti Is A Manufacturer Of Computer Network Equ 1 (121.33 KiB) Viewed 45 times
- Question 2 15 Marks 30 Minutes Freddy Van Vleet Technologies Inc Fvvti Is A Manufacturer Of Computer Network Equ 2 (100.41 KiB) Viewed 45 times
Question 2 (15 marks; 30 minutes) Freddy Van Vleet Technologies Inc. (“FVVTI”) is a manufacturer of computer network equipment in North America that supplies mid-market companies. FVVTI recently raised long-term debt from an existing shareholder, Mr. Daddy’s Money (“Mr. DM” or “the Creditor”), that is very new to lending money (unsophisticated) and unfamiliar with the industry that the Company operates in. Mr. DM has therefore hired you as a consultant to assist him in monitoring his loan to FVVTI and perform various types of financial analysis. Selected financial date of FVVTI at December 31, 2021, are shown below (in thousands). Cash Accounts receivable. Inventory Fixed assets Accumulated. $ 42,000 90,000 39,000 120,000 25,800 Accounts payable. Long-term Debt.. Accrued taxes. Capital stock Retained earnings. $ 78,000 21,000 10,800 120,000 35,400 The following information is available for the year ended December 31, 2021. Sales .... $ 450,000 Cost of goods sold (excluding depreciation) ... 310,000 Operating expenses 100,000 Depreciation... 15,000 Net income. 25,000
For 2022, FVVTI anticipates a 5% sales growth. To counterbalance this lower-than-expected growth rate, the company implements cost-cutting strategies to reduce cost of goods sold by 2% from the 2021 level. All other expenses are expected to increase by 4% given recent inflationary pressures. The company offers a discount of 2% of sales if payment is received in 10 days. It is expected that 10% of sales take advantage of this discount, while the remaining 90% are collected (on average) in 60 days. The company requires $150,000 to buy new equipment in 2022. The company is required to pay-down all of the long-term debt half-way through 2022. In 2021, the company paid $10,000 in interest expense which is captured in “operating expenses" above. Required (15 marks, 30 minutes): a) The Creditor has asked you to prepare the forecasted income statement for 2022. Support your response. b) Mr. DM wants to know if the company is expected to generate, or utilize, cash flows in 2022. Support your response.