1. Assuming the company does not invest in the new product line, prepare forecasted
income statements and balance sheets at year-end 2010, 2011, and 2012. Based on
these forecasts, estimate Ravenscroft’s required external financing. In this case all
required external financing takes the form of additional notes payable from its
commercial bank, for the same period.
2. What course of action do you recommend regarding the proposed investment in
the new product line? Should the company accept or reject this investment
opportunity?
3. How does your recommendation from Question 2 above impact your estimate of
the company’s forecasted income statements and balance sheets, and required
external financing in 2010, 2011 and 2012? How do these forecasted income
statements and balance sheets differ if the company relies solely no additional
notes payable from its commercial bank, compared to a sale of new equity?
4. As CFO Craig Babson, what financing alternative would you recommend to the
board of directors to meet the financing needs you estimated in questions 1
through 3 above? What are the costs and benefits of each alternative?