The Owl Corporation is planning for 20X2. The firm expects to have the following financial result in 20X1 ($000). Management has made the following planning assumptions: Income Statement • Revenue will grow by 10%. • The cost ratio will improve to 37% of revenues. • Expenses will be held to 44% of revenues. Balance Sheet • The year end cash balance will be $1.5 million. • The ACP will improve to 40 days from the current 60. • Inventory turnover will improve to 7_ from 6_. • Trade payables will continue to be paid in 45 days. • New capital spending will be $5 million. • Newly purchased assets will be depreciated over 10 years using the straight line method taking a full year’s depreciation in the first year. • The company’s payroll will be $13.7 million at the end of 20X2. • No dividends or new stock sales are planned. The following facts are also available: • The firm pays 10% interest on all of its debt. • The combined state and federal income tax rate is a flat 40%. • The only significant payables come from inventory purchases, and product cost is 75% purchased materials. • Existing assets will be depreciated by $1,727,000 next year. • The only significant accrual is payroll. The last day of 20X2 will be one week after a payday. Forecast Owl’s income statement and balance sheet for 20X2. Round all calculations to the nearest $1,000 and use a 360-dayyear.


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