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

How are the payment terms of an fra different from those of

How are the payment terms of an FRA different from those of most other interest rate derivatives? Explain how FRAs are like swaps and how they are different? Compare the use of interest rate options with forward rate agr ...

The wealth transfer decisionnbspplease respond to the

"The Wealth Transfer Decision" Please respond to the following: Imagine that you are an estate planner and a friend is seeking advice regarding leaving property to his children. He has accumulated approximately $1 millio ...

1 what does it mean to say that a currency trades at a

1. What does it mean to say that a currency trades at a forward premium? 2. Explain how the law of one price establishes a relationship between changes in currency values and inflation rates. 3. Why does purchasing power ...

Find the future value of the following ordinary annuities

Find the future value of the following ordinary annuities. Payments are made and interest is compounded as given . R=$8000, 6% interest compounded annually for 20 years.

Evaluate the expression uwxyz exactly as parenthesized ie

Evaluate the expression (u+)+(w+x)+(y+z) exactly as parenthesized (i.e., do not use the commutative or associative laws to reorder the additions). Give register-level machine code to provide the maximum possible parallel ...

Theres no real difference between options and futures both

"There's no real difference between options and futures. Both are tools for controlling risk, and both are derivative products. It's just that with options you have to pay an option price, while futures require no upfron ...

Consider a us investor who owns a portfolio of japanese

Consider a U.S. investor who owns a portfolio of Japanese securities worth 160 million japanese yen. In order to hedge to currency risk, he considers buying currency puts on yen instead of selling futures contracts. In P ...

1 what are some ways in which scientists get ideas for

1. What are some ways in which scientists get ideas for their research? 2. Why can theories not be proved or disproved by research? 3. Given that proof and disproof are impossible in science, how does scientific knowledg ...

1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: third-variable problem directionality problem confounding variable random process placebo mundane realism experimental realism 2. De ...

Writing in the wall street journal vincent reinhart the

Writing in the Wall Street Journal, Vincent Reinhart, the former director of the Federal Reserve's division of monetary affairs, argued: The problem with securitization is that it dilutes individual responsibility. The m ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen