Question 1:
What we know-Balance sheet as of Dec 31st 2012 shown in millions
| Cash |
3.5 |
|
Accounts payable |
9 |
| Receivables |
26 |
|
Notes payable |
18 |
| Inventories |
58 |
|
Accruals |
8.5 |
| Total current assets |
87.5 |
|
Total current liabilities |
35.5 |
| Net fixed assets |
35 |
|
Mortgage loan |
6 |
|
|
|
Common stock |
15 |
|
|
|
Retained earnings |
66 |
| Total assets |
122.5 |
|
Total liabilities and equity liabilities |
122.5 |
Sales for 2012 were $350 million and net income for the year was $10.5 million, so the firm's profit margin was 3%. They paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. It tax rate is 40% and it opened at full capacity. Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2013.
a. If sales are projected to increase by $70 million, or 20%, during 2013, use the AFN equation to determine their projected external capital requirements.
b. Using the AFN equation determine the self-supporting growth rate. What is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?
c. Use the forecasted financial statement method to forecast their balance sheet for December 2013.What is the amount of notes payable reported on the 2013forecasted balance sheet?
Question 2:
| Balance sheet as of Dec 31st 2012 in thousands |
|
|
| Cash |
1,080 |
|
Accounts payable |
4,320 |
| Receivables |
6,480 |
|
Accruals |
2,880 |
| Inventories |
9,000 |
|
Notes payable |
2,100 |
| Total current assets |
16,560 |
|
Total current liabilities |
9,300 |
| Net fixed assets |
12,600 |
|
Mortgage bonds |
3,500 |
|
|
|
Common stock |
3,500 |
|
|
|
Retained earnings |
12,860 |
| Total assets |
29,160 |
|
Total liabilities and equity |
29,160 |
|
|
|
|
|
| Income statement for Dec 31 2012 in thousands |
|
|
| Sales |
36,000 |
|
|
|
| Operating costs |
32,440 |
|
|
|
| Earnings before interest and taxes |
3,560 |
|
|
|
| Interest |
460 |
|
|
|
| Earnings before taxes |
3,100 |
|
|
|
| Taxes (40%) |
1,240 |
|
|
|
| Net income |
1,860 |
|
|
|
| Dividends (45%) |
837 |
|
|
|
| Addition to retained earnings |
1,023 |
|
|
|
a. Suppose 2013 sales are projected to increase by 15% over 2012 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for Dec 31 2013. The interest rate on all debt is 10% and cash earns no interest income. Assume that all additional debt is added at the end of the year which means that you should base the forecasted interest expense on the balance of debt at the start of the year.
Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2012 the it cannot sell off any of its fixed assets and that any required financing will be borrowed as notes payable. Assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed.
b. What is the resulting total forecasted amount of notes payable?