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FINANCIAL FORECASTING Sambonoza Enterprises projects its sales next year to be $

ID: 2621100 • Letter: F

Question

FINANCIAL FORECASTING Sambonoza Enterprises projects its sales next year to be $4 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): 1. Current assets will equal 20 percent of sales, and fixed assets will remain at their current level of $1 million. 2. Common equity is currently $0.8 milion, and the firm pays out half its after-tax earnings in dividends. 3. The firm has short-term payables and trade credit that normally equal 10 percent of sales, and it has no long-term debt outstanding. What are Sambonoza's financing needs for the coming year? 1. Start Excel. Download and open the workbook named: Keown Martin 2. In cell B16, calculate the earnings after taxes. (1 point) 3. In cell B17, calculate the current assets. (1 point) 4. In cell B18, calculate the dividends. (1 point) 5. In cell B19, calculate the short-term payables and trade credit. (1 point) 6. In cell B20, calculate the total assets. (1 point) 7. In cell B21, calculate the retained earnings. (1 point) 8. In cell B22, calculate the total financing available. (1 point) 9. In cell B23, calculate the financing needs. (1 Proble DATA Sales next year Earnings after taxes/Sales Current assets/Sales Fixed assets Common equi Paid-out ratio Short-term payables and trade credit/Sales $4,000,000 5% 20% S1,000,000 $800,000 50% 10% SOLUTION Earnings after taxes Current assets Dividends Short-term payables and trade credit Total assets Retained earnings Total financing available Financing needs

Explanation / Answer

Sales = 4000,000

Earnings after taxes / Sales = 5%

Earnings after taxes = 0.05*4000,000

Earnings after taxes = 200,000

Current Assets / Sales = 20%

Current Assets = 0.2* 4000,000

Current Assets = 800,000

Payout Ratio = 50% (This is dividend payout ratio)

Payout Ratio = Dividends / Earnings after taxes

Dividends = 0.5*200,000

Dividends = 100,000

Short-term payables and trade credits / sales = 10%

Short-term payables and trade credits = 0.1*4000,000

Short-term payables and trade credits = 400,000

Fixed Assets (Non - Current Assets ) = 1000,000

Current Assets= 800,000

Total Assets = 1800,000

Retained Earnings = Earnings after tax - Dividends paid

Retained Earnings = 200,000 - 100,000

Retained Earnings = 100,000

Financing available = Retained earnings = 100,000

Financing needs = Total Debt (short term and long term) = 400,000