Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
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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(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 retained earnings) totaling $6.5 million.
Cumberland plans to pay $750,000 in common stock dividends next year.
Required:
What are Cumberland’s total financing needs (that is, total assets) for the coming year?
Given the firm’s projections and dividend payment plans, what are its discretionary financing needs?
Based on your projections, and assuming that the $150,000 expansion in fixed assets…
(Financial forecasting percent of sales) Tulley Appliances, Inc. projects next year's sales to be $19.9 million. Current sales are at $15.3 million, based on current assets of $5.1 million and fixed
assets of $4.9 million. The firm's net profit margin is 5.3 percent after taxes. Tulley forecasts that current assets will rise in direct proportion to the increase in sales, but fixed assets will increase by
only $110,000. Currently, Tulley has $1.6 million in accounts payable (which vary directly with sales), $1.9 million in long-term debt (due in 10 years), and common equity (including $3.8 million in
retained earnings) totaling $6.3 million. Tulley plans to pay $501,000 in common stock dividends next year.
a. What are Tulley'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 $110,000 expansion in fixed assets will…
Magnum, Inc., projects next year's sales to be $20 million. Current sales are at $15 million, based on current assets of $7 million and fixed assets of $8 million. The firm's net profit margin is 5 percent after taxes. Magnum forecasts that current assets will rise in direct proportion to the increase in sales but that fixed assets will increase by only $150,000. Currently, Magnum has $1.5 million in accounts payable (which vary directly with sales), $7 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) totaling $6.5 million. Magnum plans to pay $500,000 in common stock dividends next year.
What are Magnum's total financing needs (that is, total assets) for the coming year?
Chapter 14 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 14 - Prob. 1RQCh. 14 - Discuss the shortcomings of the percent of sales...Ch. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - (Financial forecasting—discretionary financing...Ch. 14 - (Pro forma accounts receivable balance...Ch. 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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