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Radical Co.




Problem #1;Radical Co.;Balance Sheet;Cash $ 50 Accounts payable $100;Inventory $150 Notes payable 100;Fixed assets $600 Long-term debt 350;Equity 250;Total assets $800 Total liabilities & equity $800;Radical Co.;Income statement;Sales $800;Costs 600;EBT $200;Taxes (34%) 68;Net income $132;a. Suppose that current assets, costs, and accounts payable maintain a constant ratio to sales. The firm retains 40% of earnings.;i. If the firm is producing at full capacity, what is the total external financing needed if sales increase 25%, assuming fixed assets increase proportionately with sales (4 marks)?;ii. If the firm is producing at only 90% capacity, describe how this would impact your answer. You don?t need to do a calculation, but it may help you to explain your reasoning. (3 marks);b.. Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve? (8 marks)


Paper#81169 | Written in 18-Jul-2015

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