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Ross4eChap03sm

# Ross4eChap03sm - Chapter 3 Financial Planning and Growth...

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Chapter 3: Financial Planning and Growth 3.1 From the relationship, S = .00001 x GNP, we can get forecast sales: S = 0.00001; GNP = 0.00001 (\$2,050 trillion) = \$20,500,000 Now, compute the other values: Projected Current Assets = Current Assets + Current Assets: CA = \$500,000 + 0.25 (\$20,500,000) = \$5,625,000 Similar for rest: FA = \$1,000,000 + 0.50 (\$20,500,000) = \$11,250,000 CL = \$100,000 + 0.10 (\$20,500,000) = \$2,150,000 and: NP = 0.02 (\$20,500,000) = \$410,000 Compute the new amount of retained earnings: RE = NP ( 1 - dvd payout ratio) = NP (1 - 0.34) = \$410,000 (0.66) = \$270,600 RE = \$3,400,000 + \$270,600 = \$3,670,600 Compute the new amount of bonds: Debt-to-Asset Ratio = Total Debt / Total Assets = (\$1,100,000 + \$2,500,000) / (\$3,000,000 + \$6,000,000) = 0.40 Bonds = [ Total Assets x Debt/Asset ratio ] - Current Liabilities = [(CA + FA) x 0.40] - CL = (\$5,625,000 + \$11,250,000) (0.40) - \$2,150,000 = \$4,600,000 Compute the new amount of stock: Use: Total Assets Total Liabilities + Total Equity, then Stock = [(CA + FA) - (CL + Bonds + RE)] = (\$5,625,000 + \$11,250,000) - (\$2,150,000 + 4,600,000 + 3,670,600) = \$6,454,400 And now we can use the above to fill in the Balance Sheet: Balance Sheet Current Assets 5,625,000 Current Liabilities \$2,150,000 Fixed Assets 11,250,000 Bonds 4,600,000 Total Assets \$16,875,000 Common Stock 6,454,400 Retained Earnings 3,670,600 \$16,875,000 Answers to End-of-Chapter Problems B-14

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3.2 First we need to find the change in Sales. Projected Sales are 110% of current sales, so current sales are: S = 330 million / 1.10 = 300 million and S = 300 million x 10% = \$30 million a. For external funds needed (in millions) : Current Assets = 25% Sales = .25(30) Fixed Assets = 150% Sales = 1.50(30) Short Term Debt = 40% Sales = .40(30) Long Term Debt = 45% Sales = .45(30) and using the formula from the book: ( 29 ( 29 Assets Debt EFN Sales Sales ProfitMargin Sales 1- DvdPayout Sales Sales = - - = (25% +150%) x 30 - (40% + 45%) x 30 - (12% x 330) (1 - 40%) = \$3.24 million b. Current assets = 25% x 330 / (1 + 10%) = 75 Fixed assets = 150% x 330 / (1+10%) = 450 Total assets = Current assets + Fixed assets = 75 + 450 = \$525 million Short term debt = 40% x 330 / (1+10%) = 120 Long term debt = 45% x 330 / (1 + 10%) = 135
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Ross4eChap03sm - Chapter 3 Financial Planning and Growth...

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