Ask Question, Ask an Expert


Ask Financial Management Expert

Case Study: Planning for Growth and Du Pont Analysis

You should include a brief summary (must be 350 words or more) of the case background description (in your own words) of this case study given below and the answer (in your own words) to each attached problem. 

Wayne Family Drugs, Inc. was founded by Larry Davidson and his friend in 2002 in Richmond, Indiana. Both founders are chemical engineers and have no prior training in business administration, especially in financial management. Due to the lack of the related expertise, the company has never been using any financial planning for its investment needs. Therefore, Wayne Family Drugs is currently running into some financial difficulties, resulted in severe cash flow problems. In addition to losing sales, Wayne Family Drugs is also falling short of revenue and profit to pay salaries to the founders. So, there is, no doubt, an urgent need for the company to be able to prepare a sound financial plan for next year (2013) to cope with the anticipated investment requirements.

1781_income statement.jpg

258_balance sheet.jpg

Wayne Family Drugs is looking forward to a growth rate of 20 percent in 2013 (i.e. its sales is expected to increase by 20%). The firm has decided to hire you as a financial consultant to fix all the cash flow problems for them.

1) You are expected to find out the internal growth rate and sustainable growth rate for Wayne Family Drugs, and describe to the founders what these numbers mean.

2) Wayne Family Drugs is currently operating at full (100%) capacity. Larry Davidson, one of the founders of the company, would like  you to advise them on what amount of external financing will be needed (EFN) for 2013 and whether Wayne Family Drug’s sales can rise at this particular rate of growth? Please be reminded to include the necessary assumptions, pro forma income statement and pro forma balance sheet in your answer in addition to other workings.

3) Wayne Family Drug’s fixed assets can only be acquired in multiples of $2,500,000 (i.e. adding a new product line will call for an  additional investment of $2,500,000 in new equipment) once Wayne Family Drugs has reached its full operating capacity. Larry is eager to know what the new external financing needed (EFN) should be as the firm is now already operating at its full capacity. In addition, they also ask you to estimate the new level of capacity utilization of the fixed assets for Wayne Family Drugs in next year when the new production line has been implemented. Please be reminded to include the new pro forma income statement and pro forma balance sheet in your answer in addition to other workings.

4) Larry is interested in knowing as well how the firm’s ROE will change from 2012 to 2013 according to the projected growth rate (subject to the condition that the firm can only acquire the required fixed assets in multiples of $2,500,000, the owners are not going to put in more capital and the firm’s payout ratio remains at the 2012 level). You are expected to do a Du Pont analysis comparison between the two years. For the Du Pont analysis, you must include both the calculations and the explanations.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91460

Have any Question? 

Related Questions in Financial Management

1 consider a 4000000 7 25-year mortgage with monthly

1. Consider a $4,000,000, 7%, 25-year mortgage with monthly payments and a 7-year maturity with balloon. If the market yield is 8% (BEY), how many disbursement discount points must the lender charge to avoid doing a nega ...

Construct a collar using the october 160 put first use the

Construct a collar using the October 160 put. First use the Black-Scholes-Merton model to identify a call that will make the collar have zero up-front cost. Then close the position on September 20. Use the spreadsheet to ...

Year beginning-of-year price dividend paid at year-end 2010

Year Beginning-of-Year Price Dividend Paid at Year-End 2010 $ 114 $ 5 2011 $ 120 $ 5 2012 $ 100 $ 5 2013 $ 105 $ 5 1. What are the arithmetic and geometric average time-weighted rates of return for the investor separtely ...

1 if the discount rate is positive the present value of

1. If the discount rate is positive, the present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. to infini ...

1 a stock investor deposited 1000 four years ago in a non

1. A stock investor deposited $1,000 four years ago in a non dividend paying stock today this stock is valued at $814. what annual rate of return has this investor earned? 2. Tech Enterprises is considering a new project ...

Athena investment company is considering the purchase of an

Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year's cash flow will be $100,000. It also bel ...

Given the mixed streams of cash flows shown in the

Given the mixed streams of cash flows shown in the following table, answer parts (a) and (b): Year Cash Flow Stream A B 1 $ 50,000 $ 10,000 2 40,000 20,000 3 30,000 30,000 4 20,000 40,000 5 10,000 50,000 Totals $ 150,000 ...

Explain how financial ratio analysis of a firmrsquos

Explain how financial ratio analysis of a firm’s projected cash flow budget could be efficiently used by its managers for financial planning. (b) Explain why creating budgets and other financial planning is an important ...

Root cream company plans to buy 20000 gallons of milk

Root Cream Company plans to buy 20,000 gallons of milk annually. It will buy the milk at $2.45 a gallon, plus $30 charge per delivery. The cost of capital for Root is 10%. The storage cost of the milk, at the average inv ...

Kevin is considering building a new studio to record his

Kevin is considering building a new studio to record his podcast. The studio costs $300,000 to build, but the higher quality will attract more downloads and subscriptions. If the new studio generates $80,000 per year in ...

  • 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