Problem 12-4 Sales Increase Bannister Legal Services and Problem 12-5 Long-Term Financing Needed At year-end 2010, Berti
Bannister Legal Services generated $2,000,000 in sales during 2010, and its year-end total assets were $1,100,000. Also, at year-end 2010, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2011, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 4%, and its payout ratio will be 70%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Round your answer to the nearest cent.
Long-Term Financing Needed
At year-end 2010, Bertin Inc.’s total assets were $1.3 million and its accounts payable were $320,000. Sales, which in 2010 were $2.3 million, are expected to increase by 30% in 2011. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Bertin typically uses no current liabilities other than accounts payable. Common stock amounted to $490,000 in 2010, and retained earnings were $320,000. Bertin has arranged to sell $130,000 of new common stock in 2011 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2011. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its profit margin on sales is 4%, and 55% of earnings will be paid out as dividends.
What were Bertin’s total long-term debt in 2010? Round your answer to the nearest dollar.
What were Bertin’s total liabilities in 2010? Round your answer to the nearest dollar.
How much new long-term debt financing will be needed in 2011? (Hint: AFN – New stock = New long-term debt.) Round your answer to the nearest dollar.