Financial forecasting—percent of sales) Next year’s sales for Cumberland Mfg. are expected to be $22 million. Current sales are $18 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin
(Financial
Next year’s sales for Cumberland Mfg. are expected to be $22 million.
Current sales are $18 million, based on current assets of $5 million and fixed assets of $5 million.
The firm’s net profit margin is 5 percent after taxes.
Cumberland estimates that current assets will rise in direct proportion to the increase in sales but that its fixed assets will increase by only $150,000.
Currently, Cumberland has $2 million in accounts payable (which vary directly with sales), $1 million in long-term debt (due in 10 years), and common equity (including $4 million in
Cumberland plans to pay $750,000 in common stock dividends next year.
Required:
- What are Cumberland’s total financing needs (that is, total assets) for the coming year?
- Given the firm’s projections and dividend payment plans, what are its discretionary financing needs?
- Based on your projections, and assuming that the $150,000 expansion in fixed assets will occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing?
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