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QuizQuestion - year period? Change in Sales = $40 Profit...

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3 A firm has the following balance sheet: Forecast Cash $ 10 Accounts payable $ 10 Accounts receivable 10 Notes payable 20 Inventory 10 Long-term debt 40 Fixed assets 72,72.4,90 Common stock 40 Retained earnings 10 Total assets $120 Total liabilities and equity $120 Fixed assets are being used at 80 percent of capacity; sales for the year just ended were $200; sales will increase $10 per year for the next 4 years; the profit margin is 5 percent; and the dividend payout ratio is 60 percent. Assume that underutilized fixed assets cannot be sold. What are the total external financing requirements for the entire 4 years, i.e., the total AFN for the 4-
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Unformatted text preview: year period? Change in Sales = $40 Profit margin = 5% A*/S0: Assets/sales Ratio: 102/200 = 0.51 L*/S0 = Liabilities/Sales Ratio: 10/200 = 0.05 If sales go up to 240 how much in assets required? = 240*.51 = 122.40 AFN = (0.51)*40 (0.05)*40 0.05(210+220+230+240) (1-.60) AFN = 20.4 2 18 AFN = 0.40 FA unused capacity = 90-(1-.80) = 90 - 72 = 18.00 AFN = 0.40 18.00 = -17.60 No additional financing is needed as the growth in sales can be handled by existing assets....
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