At year-end 20X4, total assets for Geneva Corporation were P1.2 million and accounts payable were P375,000. Sales, which in 20X4 were P2.5 million, are expected to increase by 25 percent in 20X5. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Geneva typically uses no current liabilities other than accounts payable. Common stock amounted to P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sell new common stock in the amount of P75,000. The firm's profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends. Required: a. What was Geneva's total debt in 20X4? b. How much new, long-term debt financing will be needed in 20X5?
At year-end 20X4, total assets for Geneva Corporation were P1.2 million and accounts payable were P375,000. Sales, which in 20X4 were P2.5 million, are expected to increase by 25 percent in 20X5. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Geneva typically uses no current liabilities other than accounts payable. Common stock amounted to P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sell new common stock in the amount of P75,000. The firm's profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends. Required: a. What was Geneva's total debt in 20X4? b. How much new, long-term debt financing will be needed in 20X5?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:216 Chapter 9
Required:
The firm operated at full capacity in 20X4. It expects sales to increase by 20
percent during 20X5 and expects 20X5 dividends per share to increase to
P1.10. Use the projected financial statement method to determine how much
outside financing is required, developing the firm's pro forma statement of
financial position and income statement, and use AFN as balancing item.
b. If the firm must maintain a current ratio of 2.3 and a debt ratio of 40 percent,
how much financing, after the first pass will be obtained using notes payable,
long-term debt, and common stock?
C.
Make the second pass financial statements incorporating financing feedbacks,
using the ratios in (b). Assume that the interest rate on debt averages 10
percent.
Problem 8 (Long-term financing needed)
At year-end 20X4, total assets for Geneva Corporation were P1.2 million and
accounts payable were P375,000. Sales, which in 20X4 were P2.5 million, are
expected to increase by 25 percent in 20X5. Total assets and accounts payable are
proportional to sales and that relationship will be maintained. Geneva typically
uses no current liabilities other than accounts payable. Common stock amounted
to P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sell
new common stock in the amount of P75,000. The firm's profit margin on sales is
6 percent; 40 percent of earnings will be paid out as dividends.
Required:
a.
What was Geneva's total debt in 20X4?
b. How much new, long-term debt financing will be needed in 20X5?
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