# Finc400 Week 2

1952 Words Apr 10th, 2012 8 Pages
Chapter 4
Problems
1. Growth and financing (LO4) Philip Morris is excited because sales for his clothing company are expected to double from \$500,000 to \$1,000,000 next year. Philip notes that net assets (Assets  Liabilities) will remain at 50 percent of Sales. His clothing firm will enjoy a 9 percent return on total sales. He will start the year with \$100,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take. Does his optimistic outlook for his cash position appear to be correct?
Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit.

4-1.
The marketing manager projects a 30 percent increase in unit volume sales this year with a 5 percent price decrease (due to a price reduction by a competitor). Returned merchandise will represent 3 percent of total sales. What is your net dollar sales projection for this year?

4-7. Solution:
Dodge Ball Bearings
Unit volume 10,000 × 1.30 13,000
Price \$20 × .95 × \$19
Total Sales \$247,000
Returns (3%) 7,410
Net Sales \$239,590

8. Production requirements (LO2) Sales for Western Boot Stores are expected to be 40,000 units for October. The company likes to maintain 15 percent of unit sales for each month in ending inventory (i.e., the end of October). Beginning inventory for October is 8,500 units. How many units should Western Boot produce for the coming month?

4-8. Solution:
Western Boot Stores
+ Projected sales 40,000 units
+ Desired ending inventory 6,000 (15% × 40,000)
– Beginning inventory 8,500
Units to be produced 37,500

9. Production requirements (LO2) Vitale Hair Spray had sales of 8,000 units in March. A 50 percent increase is expected in April. The company will maintain 5 percent of expected unit sales for April in ending inventory. Beginning inventory for April was 400 units. How many units should the company produce in April?

4-9. Solution:
Vitale Hair Spray
+ Projected sales 12,000 units (8,000 × 1.50)
+ Desired ending inventory 600 (5% ×