FORECASTING DISCRETIONARY FINANCING NEEDS Fishing Charter Inc. estimates that it
ID: 2769829 • Letter: F
Question
FORECASTING DISCRETIONARY FINANCING NEEDS
Fishing Charter Inc. estimates that it ivnvests $0.38 in assets for each dollar of new sales. However, $0.05 in profits are produced by each dollar of additional sales, of which $0.02 can be reinvested in the firm. If sales rise by $500,000 next year from their current level of $5 million, and the ratio of spontaneous liabilities to sales is 5 percent, what will be the firm's need for discretionary financing? (Hint, in this situation you do not know what the firm's existing level of assets is, not do ou know how those assets have been financed. Thus, you must estimate the change in financing needs and mathc this change with the expected changes in sponaneous liabilities, retained earnings, and other sources of discretionary financing.)
THE FIRMS NEED FOR DISCRETIONARY FINANCING IS $__________________ ROUND TO THE NEAREST DOLLAR.
Explanation / Answer
Amount available for reinvestment = $500,000 x $0.02 = $10,000
Spontaneous Liabilities = $500,000 x 5% = $25,000
Total discretionary financing needed = $25,000 - $10,000 = $15,000
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