CN Railways is North America's fifth largest railway. Forecast the financial statements for CN for Year 11. Use the percent of sales method based on Year 10 and the assumptions listed below

Question

Please note the ratios to sales provided in the table which are useful for making the forecast.
Sales growth of 10%. The cost of debt is 4.59%. The tax rate is 31.943%. The depreciation rate is 3%. CAPEX is $1,600 Million. The following accounts are constant: Intangible assets, Deferred taxes, and Common Stock. Long term debt is the PLUG variable. No dividends.
Forecast the financial statements for CN. What are the additional funds needed (AFN) in Year 11? The AFN is the change in the plug account from Year 10 to Year 11.

CN Railway Company
Income Statement and Balance Sheet
As of December 31, Year 10 ($ 000,000's)
Year 10 Ratios Forecast
Revenue $6,110 $6,721
COGS 2,550 0.417349
Dep. Exp. 499
SG&A 1,945 0.318331
EBIT 1,116
Int. Exp. 277
Income before Taxes 839
Income Taxes 268
Net income $571
ASSETS Year 10 Ratios Forecast
Total Current Assets 1,163 0.190344
PP&E 16,898
Intangible assets 863 863
Total assets $18,924
Total Current liabilities 2,134 0.349264
Deferred Taxes 5,160 5,160
Long-term debt 5,003
Common Stock 3,558 3,558
Retained earnings 2,762
Total Owner's Equity 6,627
Total liabilities and Owner's equity 18,924

A) $64 million
B) $165 million
C) $342 million
D) $580 million
E) $965 million

Answer 1

D