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1. Complete the 2006% of sales calculations. 2005 % of sales has been calculated as an example.,2. Answer this question: why is the % of sales for sales 100%?,,We will now step through each assumption provided in the New Strategic Initiative Assumptions Memo (the original).,For each assumption, please indicate which line items on the income statement and balance sheet would be directly impacted by the assumption. ,Line item reference numbers are provided in Column B of the historical statements. ,Assumption 1 has been completed as an example.,Assumption,3. Assume inflation of 4% on expenses, not including depreciation and taxes. ,This is in addition to the new initiative’s costs..,,4. Assume the following regarding variables versus fixed-nature-of-income-statement operating,expenses for the existing business:,a. 80% of wage benefits is variable and 20% is fixed.,b. 100% of fuel expenses, purchased transportation, and operating supplies is variable.,c. 100% of operating taxes is fixed.,d. 20% of insurance and claims is fixed; the balance is variable.,e. Assume depreciation, even with new expenditures, is fixed as the retirement of written-off,assets, equaling new equipment.,,5. There will be new spending areas reflected on future budgets to reflect added satellite warehouse,costs and space rental and costs of running the locations.,a. In the first year, add $10 million of inflation, space rental, and operating costs at 25% of,revenues from the new initiative.,b. In the second year, add $10 million space rental, with inflation at the same variable percentage,of sales.,c. In the third year, add $7.5 million of the variable percentage of sales.,,6. In marketing, budget accounts have been added for new incurred costs. We will continue our,present promotion and launch a new program, with the assistance of our marketing partner, the ABC,Marketing Agency. They will advise us on the type, frequency, and content of new messages.,Assume 100% of the existing budget is fixed with respect to volume along with new expenses. We,expect incremental expenses, with $5 million of inflation in the first three years.,,7. Our existing sales force, comprised of four national account managers, will call on clients such as,Wal-Mart®, Sears®, and Best Buy®. Existing expenses are assumed to be 100% fixed in relation to,revenue. To tap into specialized markets, our strategy is aimed at adding four industry-specific,managers, each with a salary base of $50,000 and 2% commission of generated revenues.,,8. The human resources budget will not change substantially aside from added hiring, recruiting,,training, and drug testing fees. Assume 10% of expenses is fixed; the balance is variable with,volume.,,9. Assume current assets and liabilities are variable. Expect an addition of $10 million to operating,property, spent in the first year. Our payment to vendors, suppliers, and taxes will be in thirty-day,terms. We expect all payments to be in sixty-day terms.,,10. Assume revenue growth from our existing business will grow at 8% versus 10% in past years. Our,new strategy, however, adds incremental consulting revenues of $3.5, $4.5, and $6.5 million in the,first, second, and third years. New warehousing will add revenue of $10, $30, and $40 million in the,first, second, and third years. All new revenue will be subject to commissions for industry-specific,managers.,,,11. Using 2006 data, calculate the current ratio.,12. Using 2006 data, calculate the profit percentage,13. Using 2006 data, calculate the debt to asset ratio,,14. Explain how EFN can be calculated using the income statement and balance sheet.,,15. Complete the first year pro forma statements (income statement and balance sheet) using the above assumptions. ,,16. Does Huffman need to borrow money? That would be your EFN calculation,,"Huffman Trucking Historical Financial Statements,(Unaudited),(In Thousands)" ,Income Statement Historical Data , Line Item Reference 2007 Estimate 2006 2006 % of Sales 2005 2005 % of Sales 2004 2003 2002,Revenue IS 1 $950,339.52 $879,944 $807,288 100.00% $685,432 $603,852 $555,778 , ,Operating Expenses ,Salaries, Wages & Benefits IS 2 $353,739 40.20% $330,597 40.95% $293,212 $266,556 $251,468 ,Fuel Expense IS 3 $217,363 24.72% $192,357 23.83% $139,389 $111,067 $104,780 ,Operating Supplies and Expenses IS 4 $152,318 17.31% $136,319 16.89% $121,442 $107,471 $95,956 ,Purchased Transportation IS 5 $89,957 10.22% $82,529 10.22% $75,026 $64,400 $54,392 ,Operating Taxes & Licenses IS 6 $18,613 2.12% $17,989 2.23% $16,170 $14,700 $14,272 ,Insurance & Claims IS 7 $13,526 1.54% $13,006 1.61% $11,587 $10,534 $9,405 ,Provision for Depreciation IS 8 $2,726 0.31% $2,738 0.34% $2,663 $2,590 $2,598 , ,Total Operating Expenses IS 9 $848,242 96.40% $775,535 96.07% $659,489 $577,318 $532,871 , ,Operating Income from Continuing Operations IS 10 $31,702 3.60% $31,753 3.93% $25,943 $26,534 $22,907 , ,Interest Expense IS 11 $790 0.09% $901 0.11% $1,036 $1,147 $1,111 ,Tax Expense IS 12 $11,701 1.33% $12,050 1.49% $10,917 $10,879 $9,163 , ,Net Income IS 13 $19,211 2.18% $18,802 2.33% $13,990 $14,508 $12,633 , , ,Balance Sheet Historical Data , Line Item Reference 2006 2006 % of Sales 2005 2005 % of Sales 2004 2003 2002,Current Assets ,Cash & Cash Equivalents BS 1 $51,993 5.91% $38,893 4.82% $33,610 $30,071 $22,086 ,Accounts Receivable BS 2 $56,292 6.40% $57,441 7.12% $53,935 $46,043 $48,492 ,Prepaid Expenses & Supplies BS 3 $3,443 0.39% $3,343 0.41% $3,269 $3,174 $2,760 ,Total Current Assets BS 4 $111,728 12.70% $99,677 12.35% $90,814 $79,288 $73,338 , ,Carrier Operating Property (at cost) BS 5 $73,024 8.30% $70,957 8.79% $69,009 $67,103 $65,166 ,Less: Allowance for Depreciation BS 6 ($57,536) -6.54% ($55,477) -6.87% ($53,473) ($51,424) ($49,356),Net Carrier Operating Property BS 7 $15,488 1.76% $15,480 1.92% $15,536 $15,679 $15,810 , ,Assets of Discontinued Operations BS 8 $16,192 1.84% $18,891 2.34% $21,590 $24,288 $26,987 ,Goodwill (net) BS 9 $57,767 6.56% $53,977 6.69% $55,646 $56,782 $51,380 ,Other Assets BS 10 $26,613 3.02% $24,194 3.00% $23,263 $25,564 $25,822 , ,Total Assets BS 11 $227,788 25.89% $212,219 26.29% $206,849 $201,601 $193,337 , , , , ,Current Liabilities ,Accounts Payable BS 12 $47,124 5.36% $39,936 4.95% $42,038 $30,462 $31,404 ,Salaries & Wages BS 13 $29,753 3.38% $27,048 3.35% $24,313 $21,904 $20,664 ,Current Portion of Long-Term Debt BS 14 $2,204 0.25% $2,514 0.31% $2,890 $3,200 $3,544 ,Freight & Casualty Claims Payable BS 15 $9,746 1.11% $8,941 1.11% $8,356 $7,737 $7,369 ,Total Current Liabilities BS 16 $88,827 10.09% $78,439 9.72% $77,597 $63,303 $62,981 , ,Long-Term Liabilities ,Accrued Pension & Post Retirement Health Care BS 17 $58,362 6.63% $52,721 6.53% $47,390 $42,694 $38,813 ,Long-Term Debt BS 18 $13,431 1.53% $15,318 1.90% $17,607 $20,497 $22,697 ,Total Long Term Liabilities BS 19 $71,793 8.16% $68,039 8.43% $64,997 $63,191 $61,510 , , ,Shareholders’ Equity ,"Common Stock,($1 par value,Authorized: 20,000,000 shares)" BS 20 $3.882 0.00% $3.882 0.00% $3.882 $3.882 $3.882 ,Treasury Shares BS 21 ($1.952) 0.00% ($1.952) 0.00% ($1.952) ($1.952) ($1.952),Retained Earnings BS 22 $67,166 7.63% $65,739 8.14% $64,253 $75,105 $68,844 ,Total Shareholders’ Equity BS 23 $67,168 7.63% $65,741 8.14% $64,255 $75,107 $68,846 , ,Total Liabilities and Shareholders’ Equity BS 24 $227,788 25.89% $212,219 26.29% $206,849 $201,601 $193,337 ,

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