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:     $ 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 $ 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. 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. $ 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. $

Answer 1