Chapter 14, Problem 3SP

(Financial forecasting—discretionary financing needs) Sambonoza Enterprises projects its sales next year to be $4 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections):

1. 1. Current assets will equal 20 percent of sales, and fixed assets will remain at their current level of $1 million.
2. 2. Common equity is currently $0.8 million, and the firm pays out half its after-tax earnings in dividends.
3. 3. The firm has short-term payables and trade credit that normally equal 10 percent of sales, and it has no long-term debt outstanding.

What are Sambonoza’s financing requirements (i.e., total assests) and discretionary financing needs (DFN) for the coming year?