Managers should find out expected costs, expenditures, and revenues associated with company's assets in order to then make decisions about short and long-term uses of capital. Correct forecasting leads to maximized returns.
Estimate revenue, receivables, inventory, or payables of one your portfolio companies chosen. Find their financial data at http://finance.yahoo.com/compute a projection for next 12 months, and demonstrate your source data and calculations.
1. Problem a: AFN equation Carter Corporation’s sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20%. Its assets totalled $3 million at the end of 2005. Carter is at full capacity, so its assets should grow in proportion to projected sales. At the end of 2005, present liabilities are $1 million, consisting of $250 000 of accounts payable, $500 000 of notes payable, and $250 000 of accrued liabilities. After-tax profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use AFN equation to forecast Carter’s extra funds essential for the coming year.
2. AFN equation Refer to Problem a, what will the extra funds required if company’s year-end 2005 assets had been $4 million? Suppose that all other numbers are same. Why is this AFN different from the one year you found in Problem a? Is the company’s “capital intensity” the same or different? Describe.
3. AFN equation Refer to Problem a, and suppose that company had $3 million in assets at the end of 2005. Though, now suppose that company pays no dividends. Under these assumptions, what will be the extra funds required for the coming year? Why is this AFN different from the one you found in problem a?
4. Problem: Pro-forma Income statement at the end of last year, Roberts Inc. reported following income statement (in millions of dollars):
Operating costs excluding depreciation 2,450
EBITDA $ 550
EBIT $ 300
EBT $ 175
Taxes (40%) 70
Net Income $ 105
Looking ahead to following year, company’s CFO has assembled the following:
• Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
• Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.
• Depreciation is expected to increase at the similar rate as sales.
• Interest costs are expected to remain unchanged.
• The tax rate is expected to remain at 40%.
On the basis of this information, what would be forecast for Roberts’ year-end net income?
5. Problem: Exchange rate If British pounds sells for $1.50 (U.S) per pound, what must dollars sell for in pounds per dollar?
6. Problem: Currency appreciation assume that 1 Danish krone can be purchased in the foreign exchange market for the 14 U.S. cents today. If the krone appreciated 10% tomorrow against dollar, how many krones will a dollar buy tomorrow?
7. Problem: Purchasing power parity in the spot market 7.8 Mexican pesos could be exchanged for 1 U.S dollar. A compact disc costs $15 in the United States. If purchasing power parity (PPP) holds, what must be the price of same disc in Mexico?