Automated Banking Mgmt, Inc

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Introduction: For one week each November, the senior managers of Automated Banking Management, Inc. go on a retreat to work on a five year plan, as well as the budget for the next year. It is the responsibility of the financial manager to prepare the necessary financial statements to be used in the decision making process by the senior managers. We assume the role of the assistant to the financial manager who is unable to attend the retreat, meaning that we must prepare the documents and present them to the senior managers. A large portion of the case focuses on the need for external funding, which methods should be used to raise capital, and what to do with excess capital if no external funding was needed. The case also involves the use of sensitivity analysis to analyze the effects of changes in many financial policies. The primary goal is to be able to show the senior managers what will happen under differing operating policies. Question 1: (Refer to appendix, figure 1) The percentage of sales equation method calculates the external funds needed by subtracting the increase in retained earnings and the increase in spontaneous liabilities from the required increase in assets to support the projected growth in sales. This method projected an external funding requirement of $3,272,800 in order to support the projected 20% increase in sales in 1993. Question 2: (Refer to appendix, figure 2) The percentage of sales method can also be used to forecast the following year’s financial information and create a set of pro forma financial statements. From the pro forma financial statements the external funding requirement can be calculated, followed by performing several iterations until the statements are balanced. Using this method, and summing the external funds needed over the four iterations, the calculated net external funding requirement for 1993 is

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