(Financial
forecasting—discretionary
financing
needs)
Sambonoza Enterprises projects its sales next year to be
$6
million and expects to earn
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
$0.80
million, and the firm pays out half of its after-tax earnings in dividends.3. The firm has short-term payables and trade credit that normally equal
11
percent of sales, and it has no long-term debt outstanding.What are Sambonoza's financing requirements (i.e., 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.
1. What are Sambonoza's financing requirements (i.e., total assets) and discretionary financing needs (DFN)?
Sambonoza's financing requirements = Current Assets + Fixed Assets
Sambonoza's financing requirements = 6 M * 28% + 1 Million
Sambonoza's financing requirements = 2.68 Million
Sambonoza's DFN = Total financing requirement - Liabilities - Owners' equity - Addition to retained earnings
Sambonoza's DFN = $2.68 M - 6 M * 11% - 0.80 M - 6 M * 7% * 50%
Sambonoza's DFN = $1.01 Million
Please upvote if answer is correct
Get Answers For Free
Most questions answered within 1 hours.