FOUNDATIONS OF FINANCE-MYFINANCELAB
10th Edition
ISBN: 9780135160619
Author: KEOWN
Publisher: PEARSON
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Chapter 14, Problem 4SP
(Financial forecasting—percent of sales) Next year’s sales for Cumberland Mfg. are expected to be $22 million. Current sales are $18 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Cumberland estimates that current assets will rise in direct proportion to the increase in sales but that its fixed assets will increase by only $150,000. Currently, Cumberland has $2 million in accounts payable (which vary directly with sales), $1 million in long-term debt (due in 10 years), and common equity (including $4 million in
- a. What are Cumberland’s total financing needs (that is, total assets) for the coming year?
- b. Given the firm’s projections and dividend payment plans, what are its discretionary financing needs?
- c. Based on your projections, and assuming that the $150,000 expansion in fixed assets will occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing?
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Chapter 14 Solutions
FOUNDATIONS OF FINANCE-MYFINANCELAB
Ch. 14 - Prob. 1RQCh. 14 - Discuss the shortcomings of the percent of sales...Ch. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 1SPCh. 14 - Prob. 2SPCh. 14 - (Financial forecastingdiscretionary financing...Ch. 14 - (Financial forecastingpercent of sales) Next years...Ch. 14 - Prob. 5SPCh. 14 - (Percent of sales forecasting) Which of the...
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