Week6 - 14-1 AFN = (A*/S)S - (L*/S)S - MS1(1 - d)=

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Unformatted text preview: 14-1 AFN = (A*/S)S - (L*/S)S - MS1(1 - d)= ($3,000,000/$5,000,000)$1,000,000 ($500,000/$5,000,000)$1,000,000 - 0.05($6,000,000)(1 - 0.7)= (0.6)($1,000,000) - (0.1)($1,000,000) - ($300,000)(0.3)= $600,000 - $100,000 - $90,000= $410,000.14-2 AFN = ($4,000,000/$5,000,000)$1,000,000 (0.1)($1,000,000) ($300,000)(0.3)= (0.8)($1,000,000) - $100,000 - $90,000= $800,000 - $190,000= $610,000.The capital intensity ratio is measured as A*/S. This firms capital intensity ratio is higher than that of the firm in Problem 14-1; therefore, this firm is more capital intensive--it would require a large increase in total assets to support the increase in sales.14-3 AFN = (0.6)($1,000,000) - (0.1)($1,000,000) - 0.05($6,000,000)(1 - 0)= $600,000 - $100,000 - $300,000= $200,000.14-8 a. Stevens TextilesPro Forma Income StatementDecember 31, 2008(Thousands of Dollars)2007Forecast Pro Forma2008Sales $36,000 1.15 Sales07 $41,400Operating costs $32,440 0.9011 Sales08 37,306EBIT $ 3,560 $ 4,094Interest 460 0.10 Debt07 560EBT $ 3,100 $ 3,534Taxes (40%) 1,240 1,414Net income $ 1,860 $ 2,120Dividends (45%) $ 837 $ 954Addition to RE $ 1,023 $ 1,166Betty Simmons, the new financial manager of Southeast Chemicals (SEC), a Georgia producer of specialized chemicals for use in fruit orchards, must prepare a financial forecast for 2008. SECs 2007 sales were $2 billion, and the marketing department is forecasting a 25 percent increase for 2008. Simmons thinks the company was operating at full capacity in 2007, but she is not sure about this. The 2007 financial statements, plus some other data, are shown below. Assume that you were recently hired as Simmons assistant, and your first major task is to help her develop the forecast. She asked you to begin by answering the following set of questions.Financial Statements And Other Data On SEC(Millions Of Dollars)A. 2007 Balance Sheet % of % ofsales salesCash & Securities $ 20 1% Accounts PayableAnd Accruals $ 100 5%Accounts Receivable 240 12 Notes Payable 100Inventory 240 12 Total Current Liabilities $ 200Total Current Assets $ 500 Long-Term Debt 100Net Fixed Assets 500 25 Common Stock 500Retained Earnings 200Total Assets $1,000 Total Liabilities And Equity $1,000B. 2007 Income Statement % of salesSales $2,000.00Cost Of Goods Sold (COGS) 1,200.00 60%Sales, General, And Administrative Costs 700.00 35Earnings Before Interest And Taxes $ 100.00Interest 10.00Earnings Before Taxes $ 90.00Taxes (40%) 36.00Net Income $ 54.00Dividends (40%) $ 21.60Addition To Retained Earnings $ 32.40MINI CASEC. Key Ratios Sec IndustryProfit Margin 2.70 4.00Return On Equity 7.71 15.60Days Sales Outstanding (365 Days) 43.80 Days 32.00 DaysInventory Turnover 8.33 11.00Fixed Assets Turnover 4.00 5.00Debt/Assets 30.00% 36.00%Times Interest Earned 10.00 9.40Current Ratio 2.50 3.00Return On Invested Capital(NOPAT/Operating Capital) 6.67% 14.00%a. Describe three ways that pro forma statements are used in financial planning.Answer: Three important uses: (1) forecast the amount of external financing that will be...
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Week6 - 14-1 AFN = (A*/S)S - (L*/S)S - MS1(1 - d)=

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