Answered: Use the percentage of sales forecasting…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 6P

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Question

Use the percentage of sales forecasting method to compute the additional financing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year. LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows:

Lambrechts Specialty Shops, Inc.

Balance Sheet as of December 31, 20X3

cash	$1,000,000	Accounts payable	$3,000,000
Accounts receivable	1,500,000	Notes payable	3,000,000
inventories	6,000,000	Long-term debt	2,000,000
Net fixed assets	3,000,000 ------------------	Stockholders’ equity	3,500,00 -----------------
Total Assets	$11,500,000	Total liabilities and equity	$11,500,000

All assets, except “cash”, are expected to vary proportionately with sales. Of total liabilities and equity, only “accounts payable” is expected to vary proportionately with sales.

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