Flowerso Company opens and operates “mega” floral stores in the United States. The idea behind the superstore concept is to model the U.S. floral industry after its European counterparts, whose flower markets generally have larger selections at lower prices. Revenues were $1 million with net profit of $50,000 last year when the first Flowerso floral outlet was opened. If the economy grows rapidly next year, Flowerso expects its sales to grow by 50 percent. However, if the economy exhibits average growth, Flowerso expects a sales growth of 20 percent. For a slow economic growth scenario, sales are expected to grow next year at a rate of 10 percent. Management estimates the probability of each scenario occurring to be rapid growth (0.30), average growth (0.50), and slow growth (0.20). Flowerso’s net profit margins are also expected to vary with the level of economic activity next year. If slow growth occurs, the net profit margin is expected to be 5 percent. Net profit margins of 7 and 10 percent are expected for the average- and rapid growth scenarios, respectively. A. Estimate the average sales growth rate for Flowerso for next year. B. Estimate the dollar amount of sales expected next year under each scenario, as well as the expected value sales amount. C. Estimate the dollar amount of net profit expected next year under each scenario, as well as the expected value net profit amount.
Flowerso Company opens and operates “mega” floral stores in the United States. The idea behind the superstore concept is to model the U.S. floral industry after its European counterparts, whose flower markets generally have larger selections at lower prices. Revenues were $1 million with net profit of $50,000 last year when the first Flowerso floral outlet was opened. If the economy grows rapidly next year, Flowerso expects its sales to grow by 50 percent. However, if the economy exhibits average growth, Flowerso
expects a sales growth of 20 percent. For a slow
5 percent. Net profit margins of 7 and 10 percent are expected for the average- and rapid growth scenarios, respectively.
A. Estimate the average sales growth rate for Flowerso for next year.
B. Estimate the dollar amount of sales expected next year under each scenario, as well as the expected value sales amount.
C. Estimate the dollar amount of net profit expected next year under each scenario, as well as the expected value net profit amount.
D. Flowerso is interested in estimating its sustainable sales growth rate. Last year, revenues were $1 million; net profit was $50,000; investment in assets was $750,000; payables and accruals were $100,000; and
the sustainable sales growth rate for Flowerso
E. Flowerso is interested in estimating its additional financing needed to support a rapid increase in sales next year. Last year, revenues were $1 million; net profit was $50,000; investment in assets was $750,000; payables and accruals were $100,000; and stockholders’ equity at the end of the year was $450,000. The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future. Based on the information stated in part E, compute the additional funds needed next year to support a 30 percent increase in sales?
Make sure to show all the formulas and calculations in addition to any assumption needed.
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