Managerial Finance

?luto yo tnbkn lX-1 Chapter I 2 Corporate Vaiuat:ion and Financial planning

ir'' ':''r The Booth company's sales are forecasted to double from $r,000 in 2013 to $2,000Additional Funds 2014. Here is the Uecember 31, 2013, balance sheet:Needed

$ roo 200

240

500

Booth's flxed assets were u,sel to only50% of capacity during 2013, but its current assets wereat their proper re,ers in relatio, to soler. au uri"t, except fixecl assets must increase at thesame rate as sales' and fixed assets wou.ld also ha'e to increase at the same rate if the currentexcess capaciry did not e.I]sr po:th': after-tax profit margin ;, ror".urt"a to be 5% and itspayout ratio to be 60%. what is Booth's additionar funds rieeded toi"ili. rhe corning year?

upton Computers makes bulk purchases of small computers, stocks them in convenie'tlylocated warehouses, ships them to its chain oi retair stores, ancr has a staff to aclvisecustomers and heip them set up their new computers. upton,s balance sheet as ofDecember 31,2013, is shown here (million, of aoUurr),

Cash

Accounts receivabie Inventories

Net fixed assets

Iotal assets

Cash

Receivables

Inventories

Total current assets Net fixed assets

Total assets

Accounts payable Notes payable

Accruals

Long-term debt Common stock Retained earnings

Total liabilities and equity$r,000

$so 150

50

400

100

250

$r,0qq

$ s.o 18.0

0

8.5

$ 3s.s 6.0

15.0

66.0

Challenging Problems 7-9

tL2-4 Forecasted

Statements and Ratios

$ 3.5 26.0

58.0

$ 87.s

35.0

Accounts payable Notes payabie

Line of credit Accruals

Total current liabilities l\{ortgage loan Common stock Retained earnings

$122.s Total liabilities and equity $122.5 Sales for 2013 rvere $350 million and net income for the year was s10.5 million, so thefirm's profit nrargin was 3.0%. Upton paid aiuia".,a, of $4.2 million to conlmonstockholders, so its payout ratio l,as s}yo. tts tax rate was 40%, and it operated at fullcapaci!'' Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profitmargin, and the payout ratio remain constant ir_, jof +. a' If sales are projected to increase by $70 million, or 2aolo,during 2014, use the AFNequation to determine Upton,s projected external .upitui ."q,rii.;;;._b' usi,g the AFN equation, det".mine up,";;r.i;--.upporrir.rg growrh rate. Thar is, wharis the ma-ximum growth rate the fi.* cun achieve without having to employnonspontaneous external funds? c use the forecasted financial statement method to forecast Upton,s balance sheet forl)ecember 3l' 2011' Assume that all additional externar capital is raised as a lineof credit at the end of the year and is reflect.d 1b".uur. the debt is atlded at the endof the year' there will be no additional interest .*p..r.. due to the nerv debt).