Philip Morris is excited because sales for his clothing company are expected to double from $650,000 to $1,300,000 next year. Philip notes that net assets (Assets – Liabilities) will remain at 50 percent of Sales. His clothing firm will enjoy a 12 percent return on total sales. He will start the year with $250,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take.
(a)
Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit.(Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)
Ending cash balance
$
(b)
Does his optimistic outlook for his cash position appear to be correct?
2.Problem 4-3 Growth and financing [LO4]
Galehouse Gas Stations, Inc., expects sales to increase from $1,710,000 to $1,910,000 next year. Mr. Galehouse believes that net assets (Assets – Liabilities) will represent 45 percent of sales. His firm has a 8 percent return on sales and pays 20 percent of profits out as dividends.
(a)
What effect will this growth have on funds?(Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)
The cash balance will change by $ .
(b)
If the dividend payout is only 15 percent, what effect will this growth have on funds?(Omit the “$” sign in your response.)
The cash balance will change by $ .
3.Problem 4-4 Sales projections [LO2]
The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated.
Outcome
Probability
Units
Price
A
.30
260
$
27
B
.50
440
42
C
.20
650
52
What is the expected value of the total sales projection? (Omit the “$” sign in your response.)
Total expected value
$
4.Problem 4-6 Sales projections [LO2]
Cyber Security Systems had sales of 3,200 units at $60 per unit last year. The marketing manager projects a 15 percent increase in unit volume sales this year with a 40 percent price increase. Returned merchandise will represent 5 percent of total sales.
What is your net dollar sales projection for this year? (Omit the “$” sign in your response.)
Net sales
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