# Chapter_6_Moodle_R - Chapter 6 Problems 6-A Gary's Pipe and Steel company expects sales next year to be \$800,000 if the economy is strong \$500,000

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Chapter 6 Problems 6-A. Gary’s Pipe and Steel company expects sales next year to be \$800,000 if the economy is strong, \$500,000 if the economy is steady, and \$350,000 if the economy is weak. Gary believes there is a 20 percent probability the economy will be strong, a 50 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for next year? 6-A. Solution: Gary’s Pipe and Steel Company State of Econom y Sales Probability Expected Outcome Strong \$800,000 .20 \$160,000 Steady 500,000 .50 250,000 Weak 350,000 .30 105,000 Expected level of sales = \$515,000 S6-1

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6-B. Tobin Supplies Company expects sales next year to be \$500,000. Inventory and accounts receivable will increase \$90,000 to accommodate this sales level. The company has a steady profit margin of 12 percent with a 40 percent dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing. 6-B. Solution: Tobin Supplies Company \$500,000 Sales .12 Profit margin 60,000 Net income 24,000 Dividends (40%) \$ 36,000 Increase in retained earnings \$ 90,000 Increase in assets 36,000 Increase in retained earnings \$ 54,000 External funds needed S6-2
6-C. Sauer Food Company has decided to buy a new computer system with an expected life of

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## This note was uploaded on 07/03/2011 for the course BUS 320 taught by Professor Sloan during the Spring '08 term at N.C. State.

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Chapter_6_Moodle_R - Chapter 6 Problems 6-A Gary's Pipe and Steel company expects sales next year to be \$800,000 if the economy is strong \$500,000

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