* 15% rate on first $50K 1272 What will happen to financing needs for above beyo
ID: 2399989 • Letter: #
Question
* 15% rate on first $50K
1272
What will happen to financing needs for above beyond 2004? How could you get the need to borrow to decline?
Projected Income statement for Year Ending Dec 31, 2004 Projected balance sheet at December 31, 2004 Amount Assets Amount Projected sales $3,600 Cash (1.5% of sales) 54 COGS Accounts receivable (12% of sales) 432 Beginning inventory $418 Inventory (16% of sales) 576 Purchases $2,750 Current assets 0 $3,168 PP&E (grow with sales) 210 Ending inventory $576 Total assets 1,272 COGS (72% of sales) $2,592 Gross profit $1,008 Liabilities Less: Operating expenses (25% of sales) $900 Notes payable (AFN = plug) 675 Operating income $108 Accounts payable 75 Plus: Purchase discounts (2% of (2750-660)) $42 Accrued expenses 52 Less: Interest $46 Long-term debt - current portion 7 Net income before taxes $90 Current liabilities 852 Provision for income taxes* $19 Long term debt 43 Net income after taxes $71 Total liabilities 844 Net worth 428* 15% rate on first $50K
Total liabilities and net worth1272
Explanation / Answer
The financing needs for above 2004 will also tend to increase as the company has only 1.5% of sales available for cash. The company has less of current assets as compared to current liabilities leading to liquidity issue. Companies net income after taxes is ony $71 which is 1.97% of the total sales. The company's expenses are more. The company can reduce its borrowing by improving its current asset ratio and by reducing the expenses or increase sales with no increase in expenses.
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