(Related to Checkpoint 17.1) (Discretionary financing needs and growth) The most
ID: 2337550 • Letter: #
Question
(Related to Checkpoint 17.1) (Discretionary financing needs and growth) The most recent balance sheet for the Armadillo Dog Biscuit Co. is shown in the following table:. The company is about to embark on an advertising campaign which is expected to raise sales from the current level of $4.98 million to $6.65 million by the end of next year. The firm is currently operating at full capacity and will have to increase its investment in both current and fixed assets to support the projected level of new sales. In fact, the fim estimates that both categories of assets will rise in direct proportion to the projected increase in sales The firm's net profits were 6.1 percent of current year's sales but are expected to rise to 6.9 percent of next year's sales. To help support its anticipated growth in asset needs next year, the firm has suspended plans to pay cash dividends to its stockholders. In past years, a $1.55 per share dividend was paid annually Armadillo's payables and accrued expenses are expected to vary directly with sales. In addition, notes payable will be used to supply the funds which are needed to finance next year's operations that are not forthcoming from other sources. a. Fill in the table,, and project the firm's needs for discretionary financing. Use notes payable as the balancing entry for future discretionary financing needs b. Compare Armadillo's current and debt ratio (total liabilities/total assets) before the growth in sales with the same ratios after the growth in sales. What was the effect of the expanded sales on these two dimensions of Armadillo's financial condition? c. What difference, if any, would have resulted if Armadillo's sales had risen to $5.65 million in one year and $6.65 million only after two years? Discuss only; no calculations a. Complete Armadillo's projected balance sheet for next year below: (Round the percent of sales to two decimal places and account balances to the nearest dollar.) Armadillo Dog Biscuit Co., Inc. Present Level Percent of Sales Projected Level Current assets 2,020,000 2,970,000 4,990,000 480,000 530,000 Net fixed assets Total Accounts payable Accrued expenses Enter any number in the edit fields and then click Check AnswerExplanation / Answer
WIth increase in sales, Companies Current ratio has decreased that means company has less cash in comparision to last for day to day operations. Debt ratio has increased which shows company has become more dependant on Debts.
3.If 5.65 Mn in first year and 6.65 Mn in second year, the current ratio will improve as company's retained earnings will increase and company will be less dependant on the debts.
Present Level percent of sales Projected level Current Assets $ 2,020,000.00 40.56% 2,697,389.56 Net Fixed Assets $ 2,970,000.00 59.64% 3,965,963.86 Total $ 4,990,000.00 $ 6,663,353.41 Accounts Payable $ 480,000.00 9.64% 640,963.86 Accrued Expenses $ 530,000.00 10.64% 707,730.92 Notes Payable $ - 875,808.63 Current Liabilities $ 1,010,000.00 $ 2,224,503.41 Long Term Debt $ 2,030,000.00 $ 2,030,000.00 Total liabilties $ 3,040,000.00 $ 4,254,503.41 Common Stock $ 590,000.00 $ 590,000.00 Retained Earnings $ 1,360,000.00 6.90% 1,818,850.00 Common Equity $ 1,950,000.00 $ 2,408,850.00 Total $ 4,990,000.00 $ 6,663,353.41Related Questions
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