Question

​(Financial

forecasting—discretionary

financing

needs​)

Sambonoza Enterprises projects its sales next year to be

​$3

million and expects to earn

4

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

24

percent of​ sales, and fixed assets will remain at their current level of

​$1

million.2. Common equity is currently

​$0.70

​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

14

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.  ​(Round to two decimal​ places.)What are​ Sambonoza's discretionary financing needs

​(DFN​)

for the coming​ year?

​

million.  ​(Round to two decimal​ places.)

Answer 1

Sales for coming year	$3,000,000
Profit after taxes	$120,000	3000000*4%
Dividend paid	$60,000	120000*50%
Retained balance	$60,000
Calculate total financing required
Current assets	$720,000	3000000*24%
Fixed assets	$1,000,000
Total assets	$1,720,000
Thus, total financing requirement or total assets for coming year is $1.72 million
Calculate discretionary financing needs as shown below:
Common equity	$700,000
Short term payable and trade credit	$420,000	3000000*14%
Retained after tax earnings	$60,000
Total financing available	$1,180,000
Discretionary financing	1720000-1180000
Discretionary financing	$540,000
Thus, discretionary financing needed is $0.54 million