Using the data given what are the company\'s total financing needs for the comin
ID: 2666064 • Letter: U
Question
Using the data given what are the company's total financing needs for the coming year? What are its discretionary financing needs? If a $100,000 expansion in fixed assets occurs, what is the largest increase in sales that the firm can support without having to resort to the use of discretionary sources of financing?DATA:
Current sales--15,000,000; Projected sales--20,000,000; Current assets--5,000,000; Net Profit Margin--5%; Rise in fixed assets--100,000; Accounts payable--1,500,000; Long-term debt--2,000,000; Common equity--6,500,000; Including R/E--4,000,000; Dividends--500,000.
Explanation / Answer
you will have to check whether my reading of the assumptions are the same as yours. Paste it in excel and recreate the formulas.
My assumptions
current assets and a/p in forecast period are same as a % of sales in current year
Total financing needs is simply change in assets (not sure whether a/p or dividends are included here)
Assumptions
Net Profit Margin
5%
Rise in fixed assets
100,000
Dividends
500,000.00
Balance Sheet
Current Year
Forecast
% of Current sales
Assets
Current assets
5,000,000
6,666,667
33%
Fixed assets
9,000,000
9,100,000
Total Assets
14,000,000
15,766,667
Liabilities
Accounts payable
1,500,000
2,000,000
10%
Long-term debt
2,000,000
2,000,000
Total Liabilities
3,500,000
4,000,000
Equity
Common equity
6,500,000
6,500,000
Retained Earnings
4,000,000
4,500,000
Total Equity
10,500,000
11,000,000
L and E
14,000,000
15,000,000
Income Statement
Current
Forecast
Sales
15,000,000
20,000,000
Net Profit
1,000,000
Dividends
500,000.00
Increase to R/E
500,000.00
Total Financing Needs
1,766,667
Change in total assets
Discretionary financing needed
766,667
Projected assets - projected liabilities - projected total equity
Largest increase in Sales without financing
818,182
My assumptions
current assets and a/p in forecast period are same as a % of sales in current year
Total financing needs is simply change in assets (not sure whether a/p or dividends are included here)
Assumptions
Net Profit Margin
5%
Rise in fixed assets
100,000
Dividends
500,000.00
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