| #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? |
| #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? |
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