Question
Using 2001 percentages, calculate additional funds needed, if any, from external sources for years 2002 - 2004.Assume no dividends are paid.In addition, to support sales
- Using 2001 percentages, calculate additional funds needed, if any, from external sources for years 2002 - 2004.Assume no dividends are paid.In addition, to support sales in excess of $105 million, new equipment will have to be purchased and installed at a cost of $11 million.This will provide sufficient production capacity to support sales up to a level of $140 million.
- Project the balance sheet for years 2002 - 2004 and check to see that the mandatory current ratio is not violated.Given this restriction, how much short-term financing, if any, could be used by CSE and maintain the required 3.50 - 1 current ratio.Assume current notes payable will be rolled-over.
- Prior to the director's meeting, Granger and Valentine ran a simple linear regression in an attempt to predict with more accuracy the inventory levels necessary to support various levels of sales.Here is their resulting equation:
Inventories = $2,745,000 + 0.104836 (sales)
Construct a graph showing this method of inventory prediction with the percent-of-sales method.For the percent of sales, use the 2001 inventory/sales ratio.Explain which method seems more accurate and reliable upon which to base business decisions.
Table 1
Balance Sheet - in thousands
2000 2001
Assets
Cash$1,969.72$2,250.17
Accts. receivables10,146.4411,707.43
Inventory8,370.819,219,60
Current assets20,486.9723,177.20
Net fixed assets9,324.8510,354.12
Total assets29,811.8233,531.32
Liabilities & Equities
Accts. payable$3,504.31$3,726.45
Notes payable1,000.002,000.00
Accrual566.09717.95
Current liabilities5,070.406,444.40
Long-term debt8,357.508,357.50
Total liabilities13,427.9014,801.90
Common stock3,500.003,500.00
Retained earnings12,883.9215,229.42
Equities16,383.9218,729.42
Total capital29,811.8233,531.32
Table 2
Income Statement
20002001
Sales$56,195.65$70,244.56
COGS45,124.9555,559.90
Gross profits11,070.7014,684.66
G&A expenses3,371.744,214.67
Fixed op. expenses1,910.352,010.44
Depreciation1,909.912,120.72
Miscellaneous702.73772.41
Total op. expenses7,894.739,118.24
EBIT3,175.975,566.42
Interest1,122.901,222.90
EBT2,053.074,343.52
Taxes944.411,998.02
Net income1,108.662,345.50
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