Quantitative Problem 1: Beasley Industries\' sales are expected to increase from
ID: 2795726 • Letter: Q
Question
Quantitative Problem 1: Beasley Industries' sales are expected to increase from $4 million in 2013 to $5 million in 2014, or by 25%. Its assets totaled $3 million at the end of 2013. Beasley is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2013, current liabilities are $700,000, consisting of $120,000 of accounts payable, $500,000 of notes payable, and $80,000 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 Beasley will need for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.
Quantitative Problem 2: Mitchell Manufacturing Company has $1,100,000,000 in sales and $260,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% 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.
$
What is Mitchell's Target fixed assets/Sales ratio? Round your answer to two decimal places. Do not round intermediate calculations.
%
If Mitchell's sales increase by 45%, 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
1.) Additional Funds Needed = Increase in Assets - Increase in Liabilities - Increase in Retained Earnings
Increase in Assets = Current Assets x Percentage increase in Sales =$3 x 0.25 =$0.75 million
Increase in Liabilities = Current Liabilities x Percentage increase in Sales =$0.70 x 0.25=$0.175 million
Increase in Retained Earnings = New Level Sales x Profit Margin x Retention Rate =$5 x 0.04 x 0.50 =$0.10 million
Additonal Funds Needed =$0.75 -0.175 -0.10 =$0.75 - 0.275 =$0.475 million
2a.) Current Sales =$1.1 billion
Current Capacity Uitilization =80%
Level of Sales with Full Capacity Utilization =$1.10/0.80 =$1.375 billion
2b.) Target Fixed Assets/ Sales ratio will be = 260,000,000/1,375,000,000 x 100 =18.91%
2c.) New Sales =$1.45 x 1.10 =$1.595 billion
New Target Assets =0.1891 x New Sales = 0.1891 x 1.595 =$0.3016 billion
Increase in Fixed Assets Required =$0.3016 -0.260 =$0.0416 billion or 41.6 million