Below are the 2017 financial statements for Aquatic Supplies Co.

Also appearing are

management’s forecasts for how individual financial statement items will vary in the future. The
company expects sales to grow 12% next year. Aquatic Supplies finances all of its needs with
10-year long-term debt at 10% interest.

1. Prepare pro forma financial statements for Aquatic Supplies for 2018 assuming that long-
term debt and interest expense remain at their 2017 levels. What is Aquatic's external
funding required for 2018?
2. Modify your forecast in part (a) assuming that long-term debt and interest expense
increased in order to make up the external funding required for 2018. (Be sure to enable
interactive calculation in Excel.) How much will additional long-term debt (compared to
2017) be required under this assumption?
3. Why are your answers to part (a) and part (b) different?
4. Perform a sensitivity analysis of Aquatic Supplies Co.’s external financing needs as
determined in part (b). Assume sales grow by 17% instead of 12%. How much total
long-term debt be required?
5. Perform a scenario analysis on the company’s projection as determined in part
(b). Assume sales grow 20%, the cost of goods sold is 38% of sales, inventory falls from
5% of sales to 3%, and accounts receivable fall from 13% of sales to 10%. How much
long-term debt is required in this scenario?

AQUATIC SUPPLIES CO.

INCOME STATEMENT ($ millions)
2017 Assumptions

growth in
Sales $582.762 12% sales
percentage
Cost of Goods Sold 240.828 39% of sales
Gross Profit 341.934
percentage
Selling, General, & Administrative Expense 257.507 49% of sales
Operating Income 84.427
percentage
Depreciation & Amortization 25.221 30% of net PP&E
Operating Profit 59.206
initially
Interest Expense 16.430 constant
Pretax Income 42.776
percentage
of pretax
Total Income Taxes 14.971 35% income
Net income $27.805
 BALANCE SHEET ($ millions)
ASSETS
minimum
balance as %
Cash & Equivalents $7.152 2% of sales
percentage
Account Receivable 70.538 13% of sales
percentage
Inventories 39.033 5% of sales
Prepaid Expenses 9.339 no change
percentage
Other Current Assets 27.076 6% of sales
Total Current Assets 153.138
percentage
Net Property, Plant, & Equipment 81.648 15% of sales
Intangible Assets 9.415 no change
percentage
Other Assets 24.642 5% of sales
TOTAL ASSETS $268.843

LIABILITIES
percentage
Accounts Payable $36.951 6% of sales
percentage
Accrued Expenses 31.206 5% of sales
Other Current Liabilities 3.663 no change
Total Current Liabilities 71.820
initially
Long Term Debt 157.720 constant
percentage
Accrued Wages 21.418 3% of sales
Total Liabilities 250.958

EQUITY
Common Stock 1.702 no change
Capital Surplus 55.513 no change
no
Retained Earnings 118.729 dividends
Less: Treasury Stock 158.059 no change
Total Equity 17.885
TOTAL LIABILITIES & EQUITY $268.843
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