Question

Baldwin Products Company anticipates reaching a sales level of $5.85 million in one year. The company expects earnings after taxes during the next year to equal $300,000. During 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 the next year. The actual balance sheet and income statement for Baldwin during Year 1 follow.

Baldwin Products Company Balance Sheet as of December 31, Year 1
Cash	$   200,000	Accounts payable	$   590,000
Accounts Receivable	450,000	Notes payable	22,000
Inventories	268,000	Long-term Debt	200,000
Fixed assets, net	1,112,000	Stockholders' equity	1,218,000
Total assets	$2,030,000	Total liabilities and equity	$2,030,000

Income Statement for the Year Ending December 31, Year 1
Sales	$3,900,000
Expenses, including interest and taxes	3,670,000
Earnings after taxes	230,000

Additional Financing Needed:     $ 470000

Pro Forma Balance Sheet as of Dec. 31, Year 2
Assets		Liabilities
Cash	$	Accounts Payable	$
Accounts Receivable		Notes Payable
Inventories		Long-term Debt
Fixed Assets, net		Stockholders' equity
Total Assets	$	Total Liabilities and
		Stockholders' Equity	$

1. Using the percentage of sales method, calculate the additional financing Baldwin Products will need over the next year at the $5.85 million sales level. Show the pro forma balance sheet for the company as of December 31, Year 2, assuming that a sales level of $5.85 million is reached. Assume that the additional financing needed is obtained in the form of additional notes payable. Round your answers to the nearest dollar.

2. Suppose that the Baldwin Products’ management feels that the average collection period on its additional sales—that is, sales over $3.90 million—will be 55 days, instead of the current level. By what amount will this increase in the average collection period increase the financing needed by the company over the next year? Round your answer to the nearest dollar.

   $  

3. If the Baldwin Products’ banker requires the company to maintain a current ratio equal to 1.5 or greater, what is the maximum amount of additional financing that can be in the form of bank borrowings (notes payable)? Round your answer to the nearest dollar.

   $  

Just need answer to part C please.

Answer 1

Baldwin Products Company anticipates reaching a sales level of $5.85 million in one year. The company expects earnings after taxes during the next year to equal $300,000. During 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 the next year. The actual balance sheet and income statement for Baldwin during Year 1 follow.

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