4. Lothbrok Industries expects to reach a sales level of $324 million for next year. The company expects to continue paying the same dividend per share for the next several years. (a) Calculate the additional financing, if any, the firm will need over the next year in order to achieve sales of $324 million. Assume all assets vary with sales, all ratios remain constant and that any debt or borrowing is non-spontaneous financing. (4 marks) Profit Margin = Retention Ratio = AFN = 2 (b) Suppose that the firm's management feels that the average collection period on its additional sales--that is, sales over $270 million will be 38 days, instead of the current level. By what amount will the increase in the average collection period increase the financing needed by the firm over the next year? (3 marks) Current ACP = Increase in financing need = (c) Independent of (a) and (b) above, assume that Lothbrok's fixed assets are only used at 75% of capacity. By what percentage could 2021 sales increase over 2020 sales without the need for an increase in fixed assets? (2 marks) Lothbrok Industries Ltd. Income Statement (Millions CDN) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Exp. Depreciation & Amortization. Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income 2020 270 154 116 74 11 32 OON oooo Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share Payout Ratio % $0.40 44.1 $0.15 36.9% 2019 2020 Lothbrok Industries Ltd. Balance Sheet, (millions CDN) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Exp. Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets 21 115 3 140 230 (88.3) 142 50 332 21 120 4 145 244 (86) 158 52 355 26 25 8 27 LIABILITIES Accounts Payable Accrued Exp. Short-term Borrowings Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 10 71 76 18 165 37 14 76 70 29 176 Total Equity Total Liabilities And Equity 167 332 179 355 4. Lothbrok Industries expects to reach a sales level of $324 million for next year. The company expects to continue paying the same dividend per share for the next several years. (a) Calculate the additional financing, if any, the firm will need over the next year in order to achieve sales of $324 million. Assume all assets vary with sales, all ratios remain constant and that any debt or borrowing is non-spontaneous financing. (4 marks) Profit Margin = Retention Ratio = AFN = 2 (b) Suppose that the firm's management feels that the average collection period on its additional sales--that is, sales over $270 million will be 38 days, instead of the current level. By what amount will the increase in the average collection period increase the financing needed by the firm over the next year? (3 marks) Current ACP = Increase in financing need = (c) Independent of (a) and (b) above, assume that Lothbrok's fixed assets are only used at 75% of capacity. By what percentage could 2021 sales increase over 2020 sales without the need for an increase in fixed assets? (2 marks) Lothbrok Industries Ltd. Income Statement (Millions CDN) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Exp. Depreciation & Amortization. Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income 2020 270 154 116 74 11 32 OON oooo Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share Payout Ratio % $0.40 44.1 $0.15 36.9% 2019 2020 Lothbrok Industries Ltd. Balance Sheet, (millions CDN) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Exp. Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets 21 115 3 140 230 (88.3) 142 50 332 21 120 4 145 244 (86) 158 52 355 26 25 8 27 LIABILITIES Accounts Payable Accrued Exp. Short-term Borrowings Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 10 71 76 18 165 37 14 76 70 29 176 Total Equity Total Liabilities And Equity 167 332 179 355
