PRINCIPLES OF FINANCE- ASSIGNMENT QUESTIONS AND PROBLEMS

 3 Assignment "Chapter 12 Questions"

Principles of Finance I

 3 Assignment "Chapter 12 Questions"

Principles of Finance I

Chapters 12 Questions and problems

·       ANSWER QUESTIONS:  12-1,

1.      Define each of the following terms:

a)       Operating plan, financial plan

b)       spontaneous liabilities, profit margin, payout

c)      Additional funds needed (AFN; AFN equations capital intensity ratios, self-supporting growth rate.

d)      forecasted financial statement approach using percent of sales

e)      Exceed capacity; lumpy assets; economies of scale

f)       full capacity sales target fixed assets/sales ratios required level of fixed assets

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ANSWER Question-12-4-

Name five key factors that affect firm’s external finance requirements.

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SOLVE PROBLEM (12-4)

Magee’s Muffin, Inc., generated $5,000.000 in sales during 2013, and its year-end Total assets were 2,500.000. Also at year end 2013, current liabilities were $1,000.000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000.00 accruals. Looking ahead to 2014, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 7% and its payout ratio will be 80%. How large a sales increase can the company achieves without having to raise funds externally-that is what is its self-supporting growth rate.

_____________________________________________________________________________PROBLEM:  (12-6)-

The both company’s sales are forecasted to double from $1,000 in 2013 to $2,000 in 2014. Here is the December 31, 2013 balance sheet:

Cash                                        $100                account payable                      $50.00

Account receivable                   200                Notes                                       150.00

Inventories                                200                Accruals                                    50.00

Net fixed assets                        500                Long-term debt                        400.00

Common Stock                                                                                                100.00

Retained earnings                                                                                           250.00

________

Total assets                              $1,000             Total Liabilities and Equity     $1,000.00

                                                        ======                                                             =======

Booth’s fixed assets were used t only 50% of capacity during 2013, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist.  Booth’s after-tax profit margin is forecasted to be 5% and its payout ratio to be 60%. What is booth’s additional funds needed (AFN) for the coming year?