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(Financial forecasting—discretionary financing needs) Fishing Charter, Inc. estimates that it invests $0.30 in assets for each dollar of new sales. However, $0.05 in profits are produced by each dollar of additional sales, of which $0.01 can be reinvested in the firm. If sales rise by $500,000 next year from their current level of $5 million, and the ratio of spontaneous liabilities to sales is 15 percent, what will be the firm’s need for discretionary financing? (Hint: In this situation you do not know what the firm’s existing level of assets is, nor do you know how those assets have been financed. Thus, you must estimate the change in financing needs and match this change with the expected changes in spontaneous liabilities,
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Foundations Of Finance
- Tobin Supplies Company expects sales next year to be $490,000. Inventory and accounts receivable will increase $75,000 to accommodate this sales level. The company has a steady profit margin of 20 percent with a 50 percent dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.arrow_forwardTinberg Cans expects sales next year to be $50,000,000. Inventory and accounts receivable (combined) will increase $8,000,000 to accommodate this sales level. The company has a profit margin at 6%. Its dividend payout is 30% of profit. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.arrow_forwardAntivirus Inc. expects its sales next year to be $3,100,000. Inventory and accounts receivable will increase by $540,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.arrow_forward
- 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?arrow_forward(Financial forecasting-discretionary financing needs) Sambonoza Enterprises projects its sales next year to be $7 million and expects to eam 7 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. Current assets will equal 28 percent of sales, and fixed assets will remain at their current level of $1 million. 2. Common equity is currently $0.90 million, and the firm pays out half of its after-tax eamings in dividends 3. The firm has short-term payables and trade credit that normally equal 14 percent of sales, and it has no long-term debt outstanding. What are Sambonoza's financing requirements (ie., total assets) and discretionary financing needs (DFN) for the coming year? What are Sambonoza's financing requirements or total assets for the coming year? million. (Round to two decimal places.)arrow_forwardTime to grow: Zephyr Sales Company has currently reported sales of $1.125 million. If the company expects its sales to grow 6.5 percent annually, how long will it be before the company can double its sales? Use a financial calculator to solve this problem.arrow_forward
- Subject - account Please help me. Thankyou.arrow_forwardJohnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)arrow_forwardA firm is considering investing in a project that is expected to generate total free cash flows of $58 million next year. After that they are expected to grow at 1.0%. To finance this project the firm will maintain a constant 65% of the firm value as debt, has a cost of capital of the firm's assets of 7.5%, corporate tax rate of 35%, and cost of debt capital of 4.7%. What is the value of this project? Round your answer to the nearest million-so for example $187,103,202.338 would be "187".arrow_forward
- Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green Caterpillar Garden Supplies Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents Accounts payable Accounts receivable Accrued liabilities Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Assets $150,000 400,000 350,000 $900,000 $2,100,000 $3,000,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 800,000 700,000 $1,500,000 $3,000,000arrow_forwardSunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %arrow_forwardSavory Bake Shop's free cash flow today is $1.32 (FCFO = $1.32). Analysts expect the company's free cash flow to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The WACC for this company 9.00%. Savory Bake has $4 million in short-term investments and $14 million in debt and 1 million shares outstanding. What is the best estimate of the stock's current intrinsic price?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT