5.

Builtrite projects that its sales next year will be $4 million and expects to earn a net profit
after taxes of 5%. Builtrite is in the process of projecting its financing needs for the coming
year and has come up with the following projections:

a) Current assets will equal 20% of sales and fixed assets will remain at the current level
of $1 million

b) Common equity is currently $800,000 and Builtrite expects to pay out half of its NPAT
in dividends

c) Builtrite has accounts payable equal to 10% of sales and no long term debt
outstanding

What are Builtrite’s financing needs (discretionary financing needs) for the coming year?

SALES = 4,000,000

CA(200,000) + FA(1,000,000) = TA (1,800,000) AP

(400,000)

LTD
(0)

(4,000,000)(.05) = 200,000 NPAT CE

(900,000)

Discretionary Finance Needs (DFN)

(500,000)

TL&E
(1,800,000)