Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 14, Problem 1SP
Summary Introduction
To determine: Discretionary financing needs (DFN).
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(Financial forecasting) Zapatera Enterprises is evaluating its financing requirements for the coming year. The firm has only been in business for one year, but its CFO predicts that the firm's operating
expenses, current assets, net fixed assets, and current liabilities will remain at their current proportion of sales.
Last year Zapatera had $12.39 million in sales with net income of $1.22 million. The firm anticipates that next year's sales will reach $15.54 million with net income rising to $2.17 million. Given its present high
rate of growth, the firm retains all of its earnings to help defray the cost of new investments.
The firm's balance sheet for the year just ended is as follows:
Estimate Zapatera's total financing requirements (total assets) and its net funding requirements (discretionary financing needed) for 2014. Note: Use the percentage of sales given in Zapatera Enterprises'
balance sheet for 2013.
Hint: Make sure to round all intermediate calculations to at least five…
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales
for the year just ended were $7.4 million. The firm also has a profit margin of 20 percent,
a retention ratio of 25 percent, and expects sales of $9.4 million next year. Fixed assets
are currently fully utilized, and the nature of Wall-E's fixed assets is such that they must
be added in $1 million increments.
Assets
Current
$2,294,000 Current liabilities
Long-term debt
Equity
assets
Fixed assets 5,402,000
Liabilities and Equity
Total assets $7,696,000
Total liabilities and
equity
$2,368,000
1,700,000
3,628,000
$7,696,000
If current assets and current liabilities are expected to grow with sales, what amount of
additional funds will Wall-E need from external sources to fund the expected growth?
(Enter your answer in dollars not in millions.)
Additional funds needed
Alpha Milk Corp is considering taking over their competitor, Dana Dairy Products, and asked your consultancy firm to perform financial statement analysis to assess feasibility of this strategic initiative. You are given the following key financial ratios, the firm’s income statement and the balance sheet. You can assume that there are 365 days in a year.
a) Using the information provided for 31 Dec 2005, calculate the following: net working capital, current ratio, quick ratio, inventory turnover, average collection period, total debt ratio, gross profit margin, net profit margin, return on total assets, return on equity.
b) Evaluate the company’s performance against industry average ratios and compare with last year’s results.
To answer, please refer to pictures attached
Chapter 14 Solutions
Foundations Of Finance
Ch. 14 - Prob. 1RQCh. 14 - Discuss the shortcomings of the percent of sales...Ch. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 1SPCh. 14 - Prob. 2SPCh. 14 - (Financial forecastingdiscretionary financing...Ch. 14 - (Financial forecastingpercent of sales) Next years...Ch. 14 - Prob. 5SPCh. 14 - (Percent of sales forecasting) Which of the...
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