(Calculating changes in net operating working capital) Faraway Fabricators, Inc., isconsidering the expansion of its welding and stamping division and estimates that this will requirethe firm's accounts receivable to increase by 12 percent of the added sales. Moreover, Farawayestimates that inventories will be 15 percent of the added cost of goods sold, while accountspayable will be 10 percent of that added cost. The firm's CFO estimates that its sales and cost ofgoods sold over the five-year estimated life of the investment are as follows:YearSalesCost of goods sold0235$150,000 $162,000 $174,960 $188,957 $204,073 $220,39990,000 97,200 104,976 113,374 122,444 132,240a. What are the (operating) working-capital requirements of the project for Years 1 through 5?(Hint: You can assume that the expenditure for operating net working capital for Year 1 is made inYear O and so forth.)b. How much additional money must Faraway invest annually because of its working-capitalrequirements?

Accounts receivable (AR) are the balance of money due to a firm for goods or services delivered or…

Answered: (Calculating changes in net operating…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 7P

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Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level, it would have had, had it been operating at full capacity. What target Fixed Assets/Sales ratio should the company set? a. 19.0% b. 14.6% c. 16.0% d. 15.4% e. 14.2% please type out all of your work
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Consider the following scenario: Green Caterpillar Garden Supplies Inc.'s Income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% next year. 1. Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before Interest and taxes (EBIT). 2. The company's operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $100,000 and $1,759,500 of preferred and common stock dividends, respectively. Complete the Year 2 Income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Net sales Less: Operating costs, except depreciation…
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