How can the firm reduce this need for external capital

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Reference no: EM131379048

Question - Prepare the following:

2016 Financial Forecasting: Additional Funds Needed

The firm is planning on a 15% increase in sales for 2017, with the Profit Margin remaining the same percentage as 2016 and the Dividend Payout Rate the same at 21.70% for 2016, the firm is forecasting an AFN of $188,233 for 2017.

How can the firm reduce this need for external capital for 2017?

What strategies can be used to reduce the need for external funds and the firm to be entirely internally financed for 2017?

	2015	2016
Year-end common stock price	$22.50	$7.45
Year-end shares outstanding	100,000	250,000
Tax rate	40%	40%

Balance Sheets


Assets	2015	2016
Cash and equivalents	$7,282	$14,000
Short-term investments	$20,000	$71,632
Accounts receivable	$632,160	$878,000
Inventories	$1,287,360	$1,716,480
Total current assets	$1,946,802	$2,680,112
Gross Fixed Assets	$1,202,950	$1,220,000
Less Accumulated Dep.	$263,160	$383,160
Net Fixed Assets	$939,790	$836,840
Total Assets	$2,886,592	$3,516,952

Liabilities and equity
Accounts payable	$324,000	$359,800
Notes payable	$720,000	$300,000
Accruals	$284,960	$380,000
Total current liabilities	$1,328,960	$1,039,800
Long-term bonds	$1,000,000	$500,000
Total liabilities	$2,328,960	$1,539,800
Common stock	$460,000	$1,680,936
Retained earnings	$97,632	$296,216
Total common equity	$557,632	$1,977,152
Total liabilities and equity	$2,886,592	$3,516,952

Income Statements

	2015	2016
Net sales	$5,834,400	$7,035,600
Costs of Goods Sold	$4,980,000	$5,800,000
Other Expenses	$720,000	$612,960
Depreciation	$116,960	$120,000
Total Operating Cost	$5,816,960	$6,532,960
Earnings before interest and taxes (EBIT)	$17,440	$502,640
Less interest	$176,000	$80,000
Earnings before taxes (EBT)	($158,560)	$422,640
Taxes (40%)	($63,424)	$169,056
Net Income	($95,136)	$253,584
Dividends Per Share	$0.110	$0.220

Reference no: EM131379048

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