You are the new financial manager of Northern Chemicals Ltd, a Kitale producer of specialized
chemicals for use in fruit orchards. Yo are in the proces
Aug 27, 2025
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You are the new financial manager of Northern Chemicals Ltd, a Kitale producer of specialized
chemicals for use in fruit orchards. Yo are in the process of preparing a financial forecast for 2022. The
company's sales revenue for 2021 was $ 2 billion, and the marketing department is forecasting a 25%
increase for 2022. You think that the company was operating at full capacity in 2021 but you are not
sure about this. The interest rate on debt is 8%. The 2021 financial statements are shown below.
2021 Balance Sheet (in millions) % of Sales
Cash and Securities $20 1%
Accounts Receivable $240 12%
Inventories $240 12%
Total Current Assets $500
Net Fixed Assets $500 25%
Total Assets $1,000
Accounts Payable and Accruals $100 5%
Notes Payable $100
Total Current Liabilities $200
Long Term Debt $100
Common Stock $500
Retained Earnings $200
Total Liabilities and Equity $1,000
2021 Income Statement (in millions) % of Sales
Sales $2,000
Variable Costs $1,200 60%
Fixed Costs $700 35%
EBIT $100
Interest $16
EBT $84
Taxes(40%) $33.60
Net Income $50.40
Dividends(30%) $15.12
Additions to Retained Earnings $35.28
Required:
a) Prepare a financial forecast for 2022 assuming that the company was operating at full capacity
in 2021. (10 marks)
b) Assuming that in 2021, fixed assets had been operated at only 75% of capacity and that sales is
expected to increase to $3,000 million and not $2,500 million in 2022, calculate the fixed assets
requirement for 2022. Show all the workings. (10 marks)
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