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 9SP
(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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(Forecasting financing needs) Beason Manufacturing forecasts its sales next year to be $5.4 million and expects to earn 4.9 percent of that amount after taxes. The firm is currently in the process
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• Current assets are equal to 19.8 percent of sales, and fixed assets remain at their current level of $0.8 million.
• Common equity is currently $0.78 million, and the firm pays out half of its after-tax earnings in dividends.
The firm has short-term payables and trade credit that normally equal 11.8 percent of sales, and it has no long-term debt outstanding.
What are Beason's financing needs for the coming year?
Beason's expected net income for next year is $
(Round to the nearest dollar.)
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Normal 0.4
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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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