Which of the Estimates Would Yield the Most Conservative but Equally Realistic Forecast

Alban, Antonette Angeline

Perez, Karen

Petranek, Stephen Edward

Salvador, Jerwin

CASE I: TOPEKA ADHESIVES (I)

POINT OF VIEW:

Whatley Twins

STATEMENT OF THE PROBLEM:

Which of the estimates would yield the most conservative but equally realistic forecast.

ANALYSIS:

Assumptions used:

1. Loan payment is made at the end of the year

1. Interest expense pertaining to the additional funding requirement, should the management decide to avail loans, is not yet factored in in the Interest Expense presented in the Profit or Loss Statement

1. Purchase is taken on full amount due to immateriality of the discount.

1. No possible short term investment which the Company may opt to invest their excess funds at.

Scenarios:

1- Used all the proposed assumptions

2- Used all the proposed assumptions except for inventory and used historical data instead

3- Used percentage of sales except for Depreciation and Interest expense which used the assumption proposed.  

EFN

The EFN for the following abovementioned scenarios are presented below:

Only the third scenario showed a negative EFN which is tantamount to having excess funds, however, the third scenario only used the percentage of sales method, thus it did not reflect the changes in the Company’s operations.

The Company is not liquid since most of its assets are in the Inventory, approximately 40-50% of the current assets, thus, the need for additional funds.

For the succeeding analysis, the third scenario will no longer be included as it is not reflective of the Company’s changes in directions.