MINI CASE: AMGEN CORPORATION
The Amgen Corporation spent several years working on developing a product that can be used to provide a healthy supplement to a variety of food products. The benefits of a new supplement have been cited In studies of the brain, eyes, and the immune system. Unfortunately, it is difficult to consume enough of any one supplement to get the benefits that most consumers demand. To counter this constraint, Amgen Corp. and several competitors have been able to develop a similar product with various benefits. However, none have been able to produce the "ultimate" solution.
Amgen Corp.'s initial product was designed to supply additives to dairy products and yogurt. For example, the venture's new product was added to cottage cheese and fruit-flavored yogurts 10 enhance the health benefits of those products. After the long product development period, Amgen Corp. began operations in 2014. Income statement and balance sheet results for 2015, the first full year of operations, have been prepared
Amgen Corp., however, is concerned with forecasting its financial statements for next year because it is uncertain as to the amount of additional financing of assets that will be needed as the venture ramps up sales next year. Amgen Corp. expects to introduce a new product that of the lane of chocolate candies. Not only will consumers get the satisfaction of the taste of chocolate candies they will benefit from the vitamin enhancement. What are considered to be conservative, sales are expected to increase IS percent next year (2016) even though the new product will come on line in mid-year. An additional 20 percent Increase in sales is expected the following year (2017), 10 percent in (2018), 5 percent in (2019), before leveling off to a projected future annual growth rate of 3 percent beginning with (2020).
A. Estimate the additional funds needed (AFN) for 2016, using the formula method based on "percent of sales" relationships.
B. Estimate the AFN for Amgen Corp. for 2017.
C. Prepare pro forma income and balance sheet statements for 2016 before obtaining any additional financing. Why does the AFN from the spreadsheet projections differ from the AFN estimated in Part A?
Attachment:- Case.rar