Long-Term Financing Needed : - At year-end 2012, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2012 were $2.5 million, are expected to increase by 25% in 2013. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2012 and retained earnings were $295,000. Ambrose plans to sell new common stock in the amount of $75,000. the firm's profit margin on sales is 6%; 60% earnings will be retained.
a. What was Ambrose's total debt in 2012?
b. How much new long-term debt financing will be needed in 2013? (Hint: AFN - New stock = New long-term debt.)
17-12 Excess Capacity
Edney Manufacturing Company has $2 billion in sales and $0.6 billion in fixed assets. Currently, the company's fixed assets are operating at 80% of capacity.
a. What level of sales could Edney have obtained if it had been operating at full capacity?
b. What is Edney's Target fixed asstes/ Sales ratio?
c. If Edney's sales increase 30%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/ Sales ratio?