Shamrock Diamonds expects sales next year to be $3, 000,000. Inventory and accounts receivable will increase $420,000 to accommodate this sales level The company has a steady profit margin of 10 percent with a 25 percent dividend payout. How much external financing will the firm have to seek? assume there is no increase in liabilities other than that which will occur with the external financing Solution: Shamrock diamonds $3,000.000 Sales Profit margin 300.000 Net income 75000 Dividends(25%) $225,000 Increase in retained earnings 420.00 Increase in assets 225.000 Increase in retained earnings $195000 External funds needed 6-4 Madonna's Clothiers sells scarves that are very popular in the fall-winter season. Units sold are anticipated as October 2.000 November 4.000 January 6000 20 000 units If seasonal production is used, it is assumed that inventory buildup will directly match sales for each month and there will be no inventory buildup The production manager thinks the above assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 20,000 units over 4 months at a level of 5,000 per month a. What is the end ing inventory at the end of each month? Compare the units produced to the units sold and keep a running total b. If the inventory costs $7 per unit and will be financed at the bank at a cost of 8%, what is the monthly financing cost and the total for the 4 months? S-215 Copyright C2005 by The McGra-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-215 6-3. Shamrock Diamonds expects sales next year to be $3,000,000. Inventory and accounts receivable will increase $420,000 to accommodate this sales level. The company has a steady profit margin of 10 percent with a 25 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing. Solution: Shamrock Diamonds $3,000,000 Sales .10 Profit margin 300,000 Net income 75,000 Dividends (25%) $ 225,000 Increase in retained earnings 420,000 Increase in assets –225,000 Increase in retained earnings $195,000 External funds needed 6-4. Madonna’s Clothiers sells scarves that are very popular in the fall-winter season. Units sold are anticipated as: October 2,000 November 4,000 December 8,000 January 6,000 20,000 units If seasonal production is used, it is assumed that inventory buildup will directly match sales for each month and there will be no inventory buildup. The production manager thinks the above assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 20,000 units over 4 months at a level of 5,000 per month. a. What is the ending inventory at the end of each month? Compare the units produced to the units sold and keep a running total. b. If the inventory costs $7 per unit and will be financed at the bank at a cost of 8%, what is the monthly financing cost and the total for the 4 months?