3. (35 pts) Forecasting Rhodes Corporation financial statement

Forecast 2020 income statement and balance sheet using the percent of sales method and the

following assumptions: (1) sales in 2020 will be 12.5 million; (2) tax rate keeps the same; (3)

each item that changes with sales will be the 2 year average percentage of sales; (4) fixed asset

will increase $1,000,000 with a 10 year straight line depreciation schedule with 0 salvage value;

(5) the common stock dividends will be $202,000; (6) interest rate on short-term and long-term

debt will be 9%; (7) Cash, short-term investment will be the same as 2019; (8) COGS, Selling

G&A expenses, A/R, inventory, A/P, Accruals will change in proportion to sales; (9) Notes

payable and long-term debt will keep the same; and if there is borrowing need, the company will

borrow from long-term debt; (10) the company will not issue stocks in 2020.

a) What is the additional funds needed in 2020? Is this a surplus or deficit or balanced? (Without

iteration, or borrowing happens at last day of the year)

b) Assume that the AFN will be absorbed by long-term debt, set up an iterative worksheet to find

total accumulated AFN (borrowing happens during the year)

c) Why accumulated AFN increases in part b)? Please explain the phenomenon.