Firm projections and dividend payment? plans

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Reference no: EM131919659

(Financial forecastinglong dash—percent of sales?)

Next? year's sales for Cumberland Mfg. are expected to be ?$16.80 million. Current sales are ?$14 ?million, based on current assets of ?$4.67

million and fixed assets of ?$7.00 million. The? firm's net profit margin is 5 percent after taxes. Cumberland estimates that its current assets will rise in direct proportion to the increase in? sales, but that its fixed assets will increase by only? $200,000. Currently, Cumberland has ?$1.50 million in accounts payable? (which vary directly with? sales),

?$2 million in? long-term debt? (due in 10? years), and common equity? (including ?$1 million in retained? earnings) totaling ?$8.17 million. Cumberland plans to pay ?$0.17You recently purchased a stock that is expected to earn 15 percent in a booming economy, 9 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession.

What is your expected rate of return on this stock?

7.75%

8.00%

9.50%

7.45%

8.50%

million in common stock dividends next year.

a. What are? Cumberland's total financing needs? (that is, total? assets) for the coming? year?

b. Given the? firm's projections and dividend payment? plans, what are its discretionary financing? needs?

c. Based on your? projections, and assuming that the? $200,000 expansion in fixed assets will? occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of? financing?

a. What are? Cumberland's total financing needs? (taht is, total? assets) for the coming? year?

Reference no: EM131919659

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