In the spring of 2013 the Caswell Publishing Company established a custom publis
ID: 2723809 • Letter: I
Question
In the spring of 2013 the Caswell Publishing Company established a custom publishing business for its business clients. These clients consisted principally of small to medium size companies in High Point Maryland. However, the company’s plans were disrupted when they landed a large printing contact form a computer company that the expected would run for several years. Specifically, the new contract would increase firm revenues by 100 percent. Consequently, Caswell’s management knew they would need to make some significant changes in firm capacity. The following balance sheet for 2013 and pro forms balance sheet for 2014 reflect the firm’s estimates of the financial impact of the 100 percent revenue growth: a. How much new discretionary financing will Caswell require based on the above estimates? b. Given the nature of the new contract and the specific need for financing that the firm expects, what recommendations might you offer to the firm’s CFO as to specific sources of financing the firm should seek to fulfill its DFN?
a. Common stock b. Long-term Debt c. Notes payable d. Sale of fixed assets e. Retained earnings
Net fixed assets
Caswell Publishing Co. Caswell Publishing Co. Balance Sheet for 2010 Pro Forma Balance Sheet for 2001 - 100% Current assets 12060000 Current assets 24120000Net fixed assets
17970000 Net fixed assets 35940000 Total 30030000 Total 60060000 Account payable 1950000 Accounts payable 3900000 Accrued expenses 1960000 Accured expenses 3920000 Notes payable 1540000 Notes payable 1540000 Current liabilities 5450000 Current liabilities 9360000 Long-term debt 6530000 Long-term debt 6530000 Total Liabilities 11980000 Total liabilitites 15890000 Common stock (par) 1060000 Common stock (par) 1060000 Paid-in-capital 2050000 Paind-in-capital 2050000 Retained earnings 14940000 Retained earnings 14940000 Common equity 18050000 Common equity 18050000 Total 30030000 Projected sources of financing 33940000 Discretionary funds needs Total financing needs=Total assetsExplanation / Answer
a) New discretionary funds needed = Total Assets - Projected sources of financing = 60060000 - 33940000 = 26,120,000.
Note: This amount of 26,120,000, has to be reduced by the expected increase in retained earnings during 2014 on account of operations for the year, to arrive at the correct DFN. Details are not available in the question to find out increse in retained earnings.
b) The specific sources should be:
Common stock or. Long-term Debt or Notes payable or a combination of these depending on the desired capital structure.