The management of Afro Quatro Ltd. want to establish the amount of financial needs for the next two years. The balance sheet of the firm as...

The management of Afro Quatro Ltd. want to establish the amount of financial needs for the next two years. The balance sheet of the firm as at 31 December 2001 is as follows:

For the year ended 31 December 2001, sales amounted to Sh.240,000,000. The firm projects
that the sales will increase by 15% in year 2002 and 20% in year 2003.
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 the next two years.
(b) (i) A proforma balance sheet as at 31 December 2003.
(ii) State the fundamental assumption made in your computations in (a) and b(i) above.

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marto answered the question on February 11, 2019 at 07:49

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