Sambonoza Enterprises projects its sales next year to be $5 million and expects

Question

Sambonoza Enterprises projects its sales next year to be $5 million and expects to earn 5 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. Curret assets will equal 26 percent of sales, and fixed assets will remain at their current level of $1 million.

2. Common equity is currently $0.7 million, and the firm pays out half of its after-tax earning in dividends.

3. The firm has short-term payable and trade credit that normally equal 9 percent of sales, and it has no long-term debt outstanding.

What are Sambonoza's financing needs for the coming year?

Explanation / Answer

Financing needs = $ 1,725,000

Sales 5000000 Exp income after taxes 250000 Current Assets 1300000 Fixed Assets 1000000 Common equity 700000 Dividend 125000 Short term payable and trade credit 450000 Financing needs for the coming year = Assets -liabilities-retained earnings                                                                            = (1300000+1000000)-450000-(250000-125000)                                                                           = 2300000-450000-125000 1725000

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