Reference no: EM133124937
Question - In 2013, the management committee of Packard Industries Inc. is considering investing $800,000 to purchase machinery and equipment to increase the productivity of its plant. In 2012, the company's revenue was $2,800,000, goods purchased from suppliers totaled $600,000, and the profit for the year was $280,000. The company's 2012 statement of financial position is as follows:
Packard Industries Inc. Statement of Financial Position As at December 31, 2012 (in $)
Assets Non-current assets 1,000,000
Current assets Inventories 300,000
Trade receivables 400,000 Cash and cash equivalents 20,000
Total current assets 720,000 Total assets 1,720,000
Equity and liabilities Equity
Share capital 200,000 Retained earnings 700,000
Total equity 900,000 Long-term borrowings 500,000
Current liabilities Trade and other payables 170,000
Short-term borrowings 150,000 Total current liabilities 320,000
Total liabilities 820,000 Total equity and liabilities 1,720,000
In 2013, management expects revenue to increase by 10%. With cutbacks indifferent segments of their business activities, ROR is expected to improve to 12%. The cost of sales as a percentage of revenue is expected to improve and declineto 20%.
Management also expects improvements in the working capital accounts. The company's objective is to lower trade receivables to $370,000, with inventory levels expected to reach $280,000.
Required -
1. Calculate the company's return on total assets for 2012.
2. How much cash will be provided by internal operations in 2013, in particular by the following?
Retained earnings
Inventories
Trade receivables
3. How much will management have to raise from external activities (shareholders and lenders) to proceed with an $800,000 investment in non-current assets?