KingPie projects its sales net year to be $4 million and expects to earn 5 perce
ID: 2699719 • Letter: K
Question
KingPie projects its sales net 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 are equal to 20% of sales and fixes assets remain at their current level of 1 million
2. Common equity is currently $0.8 million, and the firm pays out half of its after-tax earning in dividends.
3. the firm has short-term payable and trade credit that normally equal 10% of sales, and its has no long-term debt outstanding.
What are KingPies financing needs for the coming year?
TIP: complete the balance sheet using the percentage of sales assumptions to solve.
What is the dicretionary funding need?
What is the total financing needed to operate next year (sum)?
Explanation / Answer
Balance Sheet
ASSETS
current asset = 0.8$ million
fixed asset = 1$ million
total = 1.8$ million
LIABILITIES
common equity = 0.8$ million
short term payable = 0.4$ million
dividents = 0.2$ million
earning = 0.2$ million
equity = 0.2$ million
total = 1.8$ million
So
dicretionary funding need = 0.2$ million
total financing needed to operate next year = 1.8$ million
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