Baldwin Products Company anticipates reaching a sales level of $6 million in one year. The company expects net income during the next year to equal $400,000. Over the past several years the company has been paying $50,000 in dividends to its stockholders. The company expects to continue this policy for at least te next year. The actual balance sheet and income statement for Baldwin during 2005 follows.
Baldwin Product Company
Balance Sheet as of December 31,2005
cash $200,000 accounts payable $600,000
accounts receivable 400,000 notes payable 500,000
inventories 1,200,000 current liabilities 1,100,000
current assets 1,800,000 long term debt 200,000
fixed assets, net 500,000 stockholders' equality 1,000,000
total assets 2,300,000 total libilityes and equality 2,3000,000
income statement for the year ending december 31,2005
sales 4,000,000
expenses,including intrest and taxes 3,700,000
net income 300,000
a) Using the percentages of sale method, calculate the additional financing Baldwin Products will need the next year at the $6 million sales leval.show the pro formal balance sheet for the company as of december 31,2006, assuming a sale level of $6 million is reached. Assume that all assets vary proportionally with sales. assume that the additional financing needed is obtained in form of additional notes payable( in other words, assume that notes payable is the plug figure).
b) suppose that the Baldwin Production managment feels that the average colection period on its additional sales that is sales over $4 million will be 60 days insted of the current level. By what amount wii this increase in the average collection period increase tha financial needed by the company over the next year.
c) if the Baldwin Production banker requires the company to maintaoin a curent ratio equal to 1.6 or greater what is the maximum amount of additional fiancing that can be in the form of bank borrowings(notes payable)? what other potential sources of financing are available to the company?
Baldwin Product Company
Balance Sheet as of December 31,2005
cash $200,000 accounts payable $600,000
accounts receivable 400,000 notes payable 500,000
inventories 1,200,000 current liabilities 1,100,000
current assets 1,800,000 long term debt 200,000
fixed assets, net 500,000 stockholders' equality 1,000,000
total assets 2,300,000 total libilityes and equality 2,3000,000
income statement for the year ending december 31,2005
sales 4,000,000
expenses,including intrest and taxes 3,700,000
net income 300,000
a) Using the percentages of sale method, calculate the additional financing Baldwin Products will need the next year at the $6 million sales leval.show the pro formal balance sheet for the company as of december 31,2006, assuming a sale level of $6 million is reached. Assume that all assets vary proportionally with sales. assume that the additional financing needed is obtained in form of additional notes payable( in other words, assume that notes payable is the plug figure).
b) suppose that the Baldwin Production managment feels that the average colection period on its additional sales that is sales over $4 million will be 60 days insted of the current level. By what amount wii this increase in the average collection period increase tha financial needed by the company over the next year.
c) if the Baldwin Production banker requires the company to maintaoin a curent ratio equal to 1.6 or greater what is the maximum amount of additional fiancing that can be in the form of bank borrowings(notes payable)? what other potential sources of financing are available to the company?