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199,200 For the year ended 31 December 2001, sales amounted to Sh.240, 000,000. The firm projects that the sales will increase by 15% in year
199,200 For the year ended 31 December 2001, sales amounted to Sh.240, 000,000. The firm projects that the sales will increase by 15% in year 2002 and 20% in year 2003. The after tax profit on sales has been 11% but the management is pessimistic about future operating costs and intends to use an after-tax profit on sales rate of 8% per annum. The firm intends to maintain its dividend payout ratio of 80%. Assets are expected to vary directly with sales while trade creditors and accrued expenses form the spontaneous sources of financing. Any external financing will be affected through the use of commercial paper. (a) Determine the amount of external financial requirements for the next two years. ( 8 marks) (b) (i) A proforma balance sheet as at 31 December 2003. (10 marks) (ii) State the fundamental assumption made in your computations in (a) and b(i) above. (2 marks)
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