Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1. The following equation is sometimes used to forecast financial requirements:
AFN = (A0 */S0) (ΔS) - (L0 */S0) (ΔS) - MS1 (1-POR)
What key assumption do we make when using this equation? Under what conditions might this assumption not hold true?

2. What is meant by the term "self-supporting growth rate?" How is this rate related to the AFN equation, and how can that equation be used to find out the self-supporting growth rate?

3. Baxter Video Products' sales are expected to increase by 20% from 5% million in 2010 to $6 million in 2011. It assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million consisting of $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter's additional funds needed for the coming year.
Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Why is this AFN different from the one previously find outd?

4. At year-end 2010, Bertin Inc.'s total assets were $1.2 million and its accounts payable were $375,000. Sales, which in 2010 were $2.5 million, are expected to increase by 25% in 2011. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Bertin typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2010, and retained earnings were $295,000. Bertin has arranged to sell $75,000 of new common stock in 2011 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2011, (Because the debt is added at the end of the year, there will no additional interests expense due to the new debt.) Its profit margin on sales is 6%, and 40% of earnings will be paid out as dividends.
a. What were Bertin's total long-term debt and total liabilities in 2010?
b. How much new long-term debt financing will be needed in 2011?
(Hint: AFN - New stock = New long-term debt.)

5. Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2010, is shown here (millions of dollars):

Cash $ 3.5 Accounts Payable $ 9.0
Receivables 26.0 Notes payable 18.0
Inventories 58.0 Accruals 8.5
Total Current Assets $ 87.5 Total current liabilities $ 35.5
Mortgage Loan 6.0
Net Fixed Asset $ 35.0 Common Stock 15.0
Retained Earnings 66.0
Total Liabilities and Equity $ 122.50

Sales for 2010 were $350 million and net income for the year was $10.5 million, so the firm's profit margin was 3.0%. Upton paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. Its tax rate is 40%, and it operated at full capacity. Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2011. If sales are projected to increase by $70 million, or 20%, during 2011, use the AFN equation to determine Upton's projected external capital requirements.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M923945

Have any Question? 


Related Questions in Basic Finance

1 how has the community development block grant served to

1. How has the Community Development Block Grant served to help communities perform local mitigation? 2. Why do some people consider insurance to not be a proper mitigation method? 3. Why are structural controls a contro ...

The following company overview of aig risk finance was

The following "Company Overview" of AIG Risk Finance was described on the Internet (investing.businessweek.com/research/stocks/ private/snapshot.asp?privcapId=11673577): AIG Risk Finance designs and implements risk finan ...

Visit the website for your state homeland security office

Visit the website for your state homeland security office. Where in government is this office? What grants and other assistance does it provide to local governments and citizens of the state? Is this office colocated wit ...

1 what makes managing employee health and safety programs

1. What makes managing employee health and safety programs around the world so difficult? 2. Why have family-friendly and work-life balance programs become so important? 3. Describe the kinds of health, safety, and secur ...

Normas cat food of shell knob ships cat food throughout the

Norma's Cat Food of Shell Knob ships cat food throughout the country. Norma has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two ...

1 oil and gas companies must disclose quantity estimates

1. Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant. 2. For ...

Grace carter purchased 100 shares of the stock of rock

Grace Carter purchased 100 shares of the stock of Rock Securities one year ago. Last year the price of the stock was $50 per share. In the year, Rock Securities paid a dividend of $2.40 per share. The price of the stock ...

Beta electronics is considering the purchase of testing

Beta Electronics is considering the purchase of testing equipment that will cost $633,000 to replace old equipment. Assume the new equipment will generate before-tax savings of $281,000 over the four years. The new equip ...

Als sport store has sales of 2720 costs of goods sold of

Al's Sport Store has sales of $2,720, costs of goods sold of $2,080, inventory of $516, and accounts receivable of $426. How many days, on average, does it take the firm to sell its inventory assuming that all sales are ...

A companys current ratio is 30 if the company uses cash to

A company's current ratio is 3.0. If the company uses cash to retire notes payable due within one year, would this transaction increase or decrease the current ratio and asset turnover ratio? Current Ratio: Decrease; Ass ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro