Homework: Chapter 17 Homework Score: 0 of 1 pt P17-8 (similar to) Save 5 or 6 (1
ID: 2821983 • Letter: H
Question
Homework: Chapter 17 Homework Score: 0 of 1 pt P17-8 (similar to) Save 5 or 6 (1 complete) HW Score: 0.98%, 0.06 016 pts Question Help Related to Checkpoint 17.1 Discretionary financing needs) Fishing CharterInc. estimates that iti vests 29 cents n assets oreach dollar of new sales. However cents in profits are produced b each dola ofadditional sales, of which 1 cent(s) can be reinvested in the firm. If sales rise by $545,000 next year from their current level of $5.35 million, and the ratio of spontaneous liabilities to sales is 0.19, 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, nor do you know how those assets have been financed. Thus, you must estimate the change in financing needs and match this change with the expected changes in spontaneous liabilities, retained eanings, and other sources of discretionary financing) The discretionary financing needs will be S (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer All parts showing Clear All Check AnswerExplanation / Answer
Change in spontaneuos liability = 0.19 * ($545,000)
= $103,550
Net Profit earned = 0.03 * $545,000 = $16,350 (1 cent is reinvested)
Increase in asset = 0.29 * $545,000 = $158,050
Intial liability = 0.19 * $5,350,000 = $1,016,500
Total liability = Initial Liability + Change in spontaneuos liability
= $1,016,500 + $103,550 = $1,120,050
But,
Liability - Asset increase = Profit + Finance
Finance = Liability - Asset increase - Profit
= $1,120,050 - $158,050 - $16,350 = $945,650
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