BUS 401 BUS401 Week 5 DQ1

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Financial Forecasting

Complete Study Problem 14-4 from the end of Chapter 14 and Study Problem 15-8 from the end of Chapter 15 and post your answers to the discussion board.  Remember to complete all parts of the problems and report the results of your analysis.  Do not forget to show the necessary steps and explain how your attained that outcome.  Respond to at least two of your classmates’ postings.

14-4. Tulley Appliances Inc. projects next year’s sales to be $20 million. Current sales are $15 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that its current assets will rise in direct proportion to the increase in sales, but that its fixed assets will increase by only $100,000. Currently, Tulley has $1.5 million in accounts payable (which vary directly with sales), $2 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) totaling $6.5 million. Tulley plans to pay $500,000 in common stock dividends next year.

15-8. Johnson Enterprises Inc. is involved in the manufacture and sale of electronic components used in small AM/FM radios. The firm needs $300,000 to finance an anticipated expansion in receivables due to increased sales. Johnson’s credit terms are net 60, and its average monthly credit sales are $200,000. In general, the firm’s customers pay within thecredit period; thus, the firm’s average accounts receivable balance is $400,000. Chuck Idol, Johnson’s comptroller, approached the firm’s bank with a request for a loan for the $300,000 using the firm’s accounts receivable as collateral. The bank offered to make a loan at a rate of 2 percent over prime plus a 1 percent processing charge on all receivables pledged ($200,000 per month). Furthermore, the bank agreed to lend up to 75 percent of the face value of the receivables pledged. 

If you will be getting money back from loans or grants, select the "direct deposit" option rather than having these funds put into a prepaid card. These cards generally have expensive withdrawal fees and limit how much you can withdraw each day. Have it direct deposited and keep the money.