14-4. (Financial forecastingpercent of sales) Next years sales for Cumberland Mfg. are expected to be $22 million. Current sales are $18 million, based on current assets of $5 million and fixed assets of $5 million. The firms net profit margin is 5 percent after taxes. Cumberland estimates that current assets will rise in direct proportion to the increase in sales but that its fixed assets will increase by only $150,000. Currently, Cumberland has $2 million in accounts payable (which vary directly with sales), $1 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) total- ing $6.5 million. Cumberland plans to pay $750,000 in common stock dividends next year.

1. What are Cumberlands total financing needs (that is, total assets) for the com- ing year?

2. Given the firms projections and dividend payment plans, what are its discre- tionary financing needs?

3. Based on your projections, and assuming that the $150,000 expansion in fixed assets will occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing?