Question
The management of Afro Quatro Ltd.Want to establish the amount of financial needs for the next two years .the balance sheet of the firm as
The management of Afro Quatro Ltd.Want to establish the amount of financial needs for the next two years .the balance sheet of the firm as at 31 December 2001 is as follows:
Sh 000
Net fixed assets 124,800
Stock 38,400
Debtors 28,800
Cash 7,200
Total assets 199,200
Financed by:
Ordinary share capital 84,000
Retained earnings 35,200
12% long term debt 20,000
Trade creditors 36,000
Accrued expenses 24,000
199200
For the year ended 31 December 2001 sales amounted to sh 240,000,000.The firm project that the sales will increase by 15% in the year 2002 and 20% in the 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 the sales rate of 8% per annum.
The firm tends 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 effected through the use of commercial paper.
Required:
Determine the amount of external financing requirements for the next two years (7 marks)
A proforma balance sheet as at 31 December 2003. (10 marks
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