FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Karen Lamont is in the process of starting a new business and wants to
- Lamont has projected the firm's sales will be $1 million in the first year.
- She believes that the operating and gross profit margins will be 20 percent and 50 percent, respectively.
- For
working capital , Lamont has estimated the following:Accounts receivable as a percentage of sales: 12%- Inventory as a percentage of sales: 15%
- Accounts payable as a percentage of sales: 7%
- Accruals as a percentage of sales: 5%
- A bank has agreed to loan her $300,000, consisting of $100,000 in short-term debt and $200,000 in long-term debt. Both loans will have an 8 percent interest rate.
- The firm's tax rate will be 30 percent.
- Lamont will need to purchase $350,000 in plant and equipment.
Lamont will provide any other financing needed.
If her estimates in Situation 3 are correct, what will be the firm's
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- Sally is thinking about starting a new business. The company would require $700,000 of assets, financed with 40% debt and 60% equity. She will go forward only if she thinks the firm can provide an ROE of at least 15.9%. Operating at a profit margin of 12%, what is the minimum amount of sales that must be expected to support starting the business? Your answer should be between 472000 and 595000, rounded to even dollars (although decimal) places are okay), with no special characters.arrow_forwardLana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?arrow_forwardEli Lilly is very excited because sales for his nursery and plant company are expected to double from $580,000 to $1,160,000 next year. Eli notes that net assets (Assets - Liabilities) will remain at 60 percent of sales. His firm will enjoy an 10 percent return on total sales. He will start the year with $180,000 in the bank and is bragging about the Jaguar and luxury townhouse he will buy. a. Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 60 percent of the sales increase) and add in profit. (Negative amount should be indicated by a minus sign.) Ending cash balancearrow_forward
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