Question
Below is your proforma balance sheet for 2019.For the year 2018, sales were $4 million.Sales are expected to be $5 million in 2019.The company expects
Below is your proforma balance sheet for 2019.For the year 2018, sales were $4 million.Sales are expected to be $5 million in 2019.The company expects its net profit margin for 2019 to equal 5%.In each of the past several years, the company has been paying $50,000 in dividends to its stockholders.The company wants to increase dividends to $80,000 in 2019. The 2018 balance sheet for Pioneer is below.
The XYZ Company
Balance Sheet as of December 31, 2018
Cash$100,000Accounts payable$600,000
Accounts receivable400,000Notes payable400,000
Inventories 1,200,000Long-term debt200,000
Fixed assets, net500,000Stockholders' equity 1,000,000
Total assets$2,200,000Total liabilities & equity$2,200,000
Assume that Cash, Accounts Receivable, Inventories, and Accounts Payable vary directly with sales.Net Fixed Assets must increase by $175,000 to support the sales expansion.Any additional financing that Pioneer will need for 2019 will come from new long-term debt, but Pioneer has a covenant that states that their ratio of total debt to total assets may not exceed 45%.How much additional financing will Pioneer need?Can they pay the increased dividend, increase their long-term debt, and still satisfy the covenant?Show numbers to support your answer.
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