Hey, can you please solve this :) Thank you! Quantitative Problem 1: A.) Mitchel
ID: 2737696 • Letter: H
Question
Hey, can you please solve this :) Thank you!
Quantitative Problem 1:
A.)
Mitchell Manufacturing Company sales are expected to increase from $4 million in 2015 to $5 million in 2016, or by 25%. Its assets totaled $3 million at the end of 2015. Mitchell Manufacturing Company is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2015, current liabilities are $760,000, consisting of $120,000 of accounts payable, $400,000 of notes payable, and $240,000 of accrued liabilities. Its profit margin is forecasted to be 4%, and its dividend payout ratio is 50%. Using the AFN equation, forecast the additional funds Mitchell Manufacturing Company will need for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.
B.)
Mitchell Manufacturing Company has $1,900,000,000 in sales and $220,000,000 in fixed assets. Currently, the company's fixed assets are operating at 75% of capacity.
What level of sales could Mitchell have obtained if it had been operating at full capacity? Round your answer to the nearest dollar. Do not round intermediate calculations
C.)
What is Mitchell's Target fixed assets/Sales ratio? Round your answer to two decimal places. Do not round intermediate calculations.
D.)
If Mitchell's sales increase by 55%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Round your answer to the nearest dollar. Do not round intermediate calculations.
Explanation / Answer
Mitchell Manufacturing Company All Amounts in $ A) Balance Sheet as on 31 December 2015 Liabilities Assets Current Liabilities 760000 Total Assets 3000000 Equity and Borrowed Funds 2240000 3000000 3000000 Balance Sheet (Projected) as on 31 December 2016 Liabilities Assets Current Liabilities * 860000 Total Assets 3750000 25% increase Equity and Borrowed Funds Opening Balance 2240000 Net Income 200000 Dividend payouts 100000 2340000 Additional Funds Required 550000 3750000 3750000 * Includes Dividend Payable of $ 100,000 (50% of Profit of $ 200,000 which is 4% of Sales of $ 5 million) B) Current Level of Fixed Assets 220000000 Level of Operating Capacity 75% Current Level of Sales 190000000 Fixed Assets / Sales Ratio 86.36% If Operating at 100% capacity, the Fixed Assets Value would be 293333333 Maintaining the Sales/Fixed Assets Ratio of 86.36%, the turnover of Mitchell at 100% capacity would be 253333333 C) Target Fixed Assets / Sales Ratio for the Company is 86.36% D) Mitchell's Sales increase by 55% Hence, the revised sales will be 294500000 To maintain the Fixed Assets / Sales Ratio The revised value of Fixed Assets will be 341000000 Thus, the increase in the Fixed Assets required will be $ 341,000,000 - $ 220,000,000 = $ 121,000,000.