The management of Mavuno Ltd. wants to establish the amount of financial needs for the next...

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The management of Mavuno Ltd. wants to establish the amount of financial needs for the next two years. The balance sheet of the firm as at 31 December 2011 is as follows: Net fixed assets Stock Debtors Cash Total assets Financed by: Ordinary share capital Retained earnings 12% long-term debt Trade creditors Accrued expenses Sh.'000' 124,800 38,400 28,800 7,200 199,200 84,000 35,200 20,000 36,000 24,000 199,200 For the year ended 31 December 2011, sales amounted to Sh.240,000,000. The firm projects that the sales will increase by 15% in year 2012 and 20% in year 2013. The after tax profit on sales has been 11% but the management is pessimistic about future operating costs and intends to use an after-tax profit on sales rate of 8% per annum. The firm intends to maintain its dividend pay out ratio of 80%. Assets are expected to vary directly with sales while trade creditors and accrued expenses form the spontaneous sources of financing. Any external financing will be effected through the use of commercial paper. Required: (a) Determine the amount of external financial requirements for 2012 and 2013. (15 marks) The management of Mavuno Ltd. wants to establish the amount of financial needs for the next two years. The balance sheet of the firm as at 31 December 2011 is as follows: Net fixed assets Stock Debtors Cash Total assets Financed by: Ordinary share capital Retained earnings 12% long-term debt Trade creditors Accrued expenses Sh.'000' 124,800 38,400 28,800 7,200 199,200 84,000 35,200 20,000 36,000 24,000 199,200 For the year ended 31 December 2011, sales amounted to Sh.240,000,000. The firm projects that the sales will increase by 15% in year 2012 and 20% in year 2013. The after tax profit on sales has been 11% but the management is pessimistic about future operating costs and intends to use an after-tax profit on sales rate of 8% per annum. The firm intends to maintain its dividend pay out ratio of 80%. Assets are expected to vary directly with sales while trade creditors and accrued expenses form the spontaneous sources of financing. Any external financing will be effected through the use of commercial paper. Required: (a) Determine the amount of external financial requirements for 2012 and 2013. (15 marks)

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