please answer part c Financial forecasting percent of sales) Tulley Appliances,

Question

please answer part c

Financial forecasting percent of sales) Tulley Appliances, Inc. projects next year's sales to be $19.6 million. Current sales are at $14.6 million, based on current assets of $4.9 million and fixed assets of $4.9 million. The firm's net profit margin is 4.6 percent after taxes. Tulley forecasts that current assets will rise in direct proportion to the increase in sales, but fixed assets will increase by only $100,000. Currently, Tulley has $1.5 million in accounts payable (which vary directly with sales), $1.9 million in long-term debt (due in 10 years), and common equity (including $3.8 million in retained earnings) totaling $6.7 million. Tulley plans to pay $460,000 in common stock dividends next year a. What are Tulley's total financing needs (that is, total assets) for the coming year? b. Given the firm's projections and dividend payment plans, what are its discretionary financing needs? c. Based on your projections, and assuming that the $100,000 expansion in fxed assets will occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing? a. What are Tulley's total financing needs (that is, total assets) for the coming year? Estimate Tulley's financing needs by completing the pro forma balance sheet: (Round the percentages of sales to two decimal places and the balance sheet amounts to the nearest dollar.) Tulley Appliances, Inc Pro Forma Balance Sheet Current assets Net fixed assets Next Year %Of Sales $ 6,577,760 5,000,000 $ 11,577,760 2,012,920 1,900,000 $ 3,912,920 33.56 % Total assets Accounts payables Long-term debt Total liabilities 10.27 % Total liabilities Paid-in capital Retained eamings Common equity 3,912,920 2,900,000 4,241,600 7,141,600 11,054,520 Total liabilities and common equity S Tulley's total financing requirements for the coming year are S 11,577,760. (Round to the nearest dollar.) b. Given the firm's projections and dividend payment plans, its discretionary financing needs are $ 523,240. (Round to the nearest dollar.) c. Based on your projections, and assuming that the $100,000 expansion in fixed assets will occur, the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing is (Round to the nearest dollar

Explanation / Answer

Ans a). Projected Financing Needs = Projected Total Assets

= Projected Current Assets + Projected Fixed Assets

= { ($5m / $15m) x $20 m} +{ $5m + $0.1m} = $11.77m

Ans b).

DFN = Projected Current Assets + Projected Fixed Assets - Present LTD - Present Owner's Equity - [Projected Net Income - Dividends] - Spontaneous Financing

= { ($5m / $15m) x $20 m} + $5.1m - $2m - $6.5m - [.05 x $20m - $.5m] - { ($1.5m / $15m) x $20 m}

DFN = $6.67m + $5.1m - $8.5m - $.5m - $2m = $0.77m

Ans c).

We first solve for the maximum level of sales for which DFN = 0:

DFN = [(5/15) - .05 - (1.5/15)] Sales – (5.1M - 2M - 6.5M + 0.5M)

DFN = 0.1833 SALES - $2.9M = 0

Thus, SALES = $15.82M

The largest increase in sales that can occur without a need to raise "discretionary funds" is:

            $15.82M - $15M = $820,000

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