Use the percentage of sales forecasting method to compute the additional financing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year. LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows:   Lambrechts Specialty Shops, Inc. Balance Sheet as of December 31, 20X3   Cash                                       $1,000,000    Accounts payable                            $3,000,000 Accounts receivable            1,500,000      Notes payable                                  3,000,000 inventories                            6,000,000      Long-term debt                                 2,000,000 Net fixed assets                   3,000,000      Stockholders’ equity                        3,500,000 Total Assets                        $11,500,000  Total liabilities and equity           $11,500,000   All assets, except “cash”, are expected to vary proportionately with sales. Of total liabilities and equity, only “accounts payable” is expected to vary proportionately with sales.

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
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  1. Use the percentage of sales forecasting method to compute the additional financing

needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to

increase from a current level of $20 million to a new level of $25 million over the

coming year. LSS expects earnings after taxes to equal $1 million over the next

year. LSS intends to pay a $300,000 dividend next year. The current year balance

sheet for LSS is as follows:

 

Lambrechts Specialty Shops, Inc.

Balance Sheet as of December 31, 20X3

 

Cash                                       $1,000,000    Accounts payable                            $3,000,000

Accounts receivable            1,500,000      Notes payable                                  3,000,000

inventories                            6,000,000      Long-term debt                                 2,000,000

Net fixed assets                   3,000,000      Stockholders’ equity                        3,500,000

Total Assets                        $11,500,000  Total liabilities and equity           $11,500,000

 

All assets, except “cash”, are expected to vary proportionately with sales. Of total liabilities and equity, only “accounts payable” is expected to vary proportionately with sales.

 

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