Balance Sheet

ALL THE INFORMATION ARE ON THE WORD DOC, USE EXCEL TO SOLVE ALL THREE QUESTIONS

 

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A firm’s most recent financial statements are as follows (in millions of dollars).

 

Balance Sheet

 

Assets                                       Liabilities and Equity

Cash                             $0.5      Accounts Payable        $0.4

Accounts Receivable     0.7      Accrued Liabilities        0.2

Inventory                        0.4      Notes Payable                0.3

Current Assets                1.6      Current Liabilities          0.9

 

Net Fixed Assets            2.5      Long-term Debt             1.7

 

Common Equity            1.5

 

Total                               4.1      Total                               4.1

 

Income Statement

 

Sales                                      $ 10.0

Cost of Goods Sold                    6.6

Gross Profit                                3.4

Operating Expenses                   2.1

Net Operating Income               1.3

Interest Expenses                       0.3

Earnings before Taxes               1.0

Income Taxes                             0.4

Net Income                                0.6

 

The management believes that sales will increase by 25 percent this year. The dividend payout ratio (Dividends / Net income) is targeted at 40 percent.  The tax rate is 40%.  Costs, other expenses, current assets, accounts payable, and accrued liabilities will increase spontaneously with sales.

 

  • The firm is operating at its full capacity, and therefore it will have to increase its fixed asset accordingly. What is the additional funding requirement for this year (answer after the first step of financial planning)?
  • What if the firm has more than enough capacity so that it will not need to increase its fixed assets? What is the additional funding requirement (answer after the first step of financial planning)?
  • As for question (1), what should be the size of the loan if the entire funding needs are financed by a 3.5% bank loan (answer after the second step of financial planning)? For this question, the Excel function, goal seek, has to be used.

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