Finance-presentation.pdf - Tutorial 9 Long-term Financial Planning Jonas Radermacher Soh Yi Bin Julian Jaramillo Adrien Welger 30.10.18

Finance-presentation.pdf - Tutorial 9 Long-term Financial...

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Tutorial 9 Long-term Financial Planning Jonas Radermacher Soh Yi Bin Julian Jaramillo Adrien Welger 30.10.18 1 FIN2704X/FIN2004X - Finance
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Question 1 à What is the external Financing needed? 30.10.18 2 FIN2704X/FIN2004X - Finance
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Question 1 – Solution (Alternative A) 30.10.18 3 FIN2704X/FIN2004X - Finance Income Statement Y(0) Y(1) Sales $4,200 $4,830 Cost 3,300 3,795 Taxable Income $900 $1,035 Taxes (34%) 306 351.9 Net income $594 $683.1 Assets, costs and current liabilities are proportional to sales. Long-term debt and equity are not. Sales are projected to increase by exactly 15%. The company maintains a constant 40% dividend payout ratio. $683.1 x 0.4 = $273.24 (Dividends) $683.1 – 273.24 = $409.86 (goes to Retained Earnings) x 1.15 x 1.15 = =
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Question 1 – Solution (Alternative A) 30.10.18 4 FIN2704X/FIN2004X - Finance ASSETS Y(0) Y(1) Current Assets $3,600 $4,140 Fixed Assets 7,900 9,085 Total $11,500 $13,225 Liab & Equity Y(0) Y(1) Current liabilities $2,100 $2,415 Long-term debt 3,650 3,650 Equity 5,750 5,750 + 409.86 = 6,159.86 Total $11,500 $12,224.86 Assets, costs and current liabilities are proportional to sales. Long-term debt and equity are not. Sales are projected to increase by exactly 15%. BALANCE SHEET TA – (TL & OE) = 13,225 – 12,224.86 = 1,000.14 External Financing needed: x 1.15 x 1.15 =
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Question 1 – Solution (Alternative B) 30.10.18 5 FIN2704X/FIN2004X - Finance Alternative B - Using the A dditional F unds N eeded Equation (AFN) ࠵?࠵?࠵? = & ( ) ∆࠵? − - ( ) ∆࠵? − ࠵?(࠵? 0 )(࠵?࠵?) A*: assets whose value and growth are tied directly to Sales à $11,500 L*: liabilities that increase spontaneously with Sales. à $2,100 M: Profit margin à $594/$4,200 = 14.14% S0: Sales during the past year à $4,200 S1: Sales projected for the coming year à $4,830 Δ S= S1 - S0 à $4,830 - $630 ࠵?࠵?࠵? = $00,566 $7,866 × $630 − $8,066 $7,866 × $630 − 14.14% × $4,830 × 0.6 = $1,000.14 ࠵?࠵? = ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵? = 1 − 0.4 = 0.6
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Question 2 à What is the internal growth rate? 30.10.18 6 FIN2704X/FIN2004X - Finance
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Question 2 - Solution 30.10.18 7 FIN2704X/FIN2004X - Finance The internal growth rate tells us how much the firm can grow assets using retained earnings as the only source of financing. b = ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = IJK LMNOPJ Q RSTSUJMUV IJK LMNOPJ I nternal Growth Rate = bc& × d 0 Q bc& × d b = ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = 8,8e8 Q (8,8e8 × 6,f) 8,8e8 = 0.7 I nternal Growth Rate = h,hih jk,lm) × 6.n 0 Q h,hih jk,lm)
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