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 Flash’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 on additional notes payable from its
commercial bank, compared to a sale of new equity?
4. As CFO Hathaway Browne, 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?