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8.2.1 Lecture_16_Solution_2009

# 8.2.1 Lecture_16_Solution_2009 - Lecture 16 Solution for...

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Lecture 16 Solution for Bison Ltd (AFN Equation).doc (a) AFN = (750,000 / 500,000)(550,000 – 500,000) - (112,500 / see next line … 500,000)(550,000 – 500,000) – (125,000 / 500,000)(550,000)(1 – 0.6) = 8,750 (b) AFN = (750,000 / 500,000)(625,000 – 500,000) – (112,500 / see next line … 500,000)(625,000 – 500,000) – (125,000 / 500,000)(625,000)(1 – 0.6) =\$96,875

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Appendix: Note that, as stated in the lecture, but not in the handout question, there are two restrictions on further borrowing: the debt/TA ratio must not exceed 0.5; and the current ratio (CA/CL) must not be less than 2.5. Restriction on additional debt
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