PROBLEMS_lecture4_5

PROBLEMS_lecture4_5 - should it issue 2 If the firm’s...

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Another pro forma example… Recent (Actual) Financial Statements: Income statement Balance sheet Sales $2,000 CA $250 CL $100 CoGS/other exp. 860 FA 550 LTD 200 Depreciation 55 Equity 500 EBIT 1 085 Total $800 Total $800 1,085 Interest 20 Taxable Income 1,065.00 Taxes (35%) 372.75 Net Income $ 692 25 $ 692.25 Sales are projected to rise by 10%. Let’s assume non depreciation costs, current assets, and fixed assets grow at the same rate as sales, the depreciation expense is always 10% of fixed assets interest expense is 10% of the amount of long term debt always 10% of fixed assets, interest expense is 10% of the amount of long term debt, and that the dividend payout ratio is 90%. 1. If the firm’s only possible source of external financing is through equity, how much
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Unformatted text preview: should it issue? 2. If the firm’s only possible source of external financing is through long ‐ term debt, how much LTD should it issue? In each case above, what would be CF from assets? CF to shareholders? To creditors? ractice problems Practice problems • hapter 4: Chapter 4: – 16, 17, 18 , 25 r # 8 n addition to info provided in problem – For # 18 , in addition to info provided in problem, assume Percentage of Sales Approach, and also ssume that you cannot issue equity assume that you cannot issue equity hapter 5 • Chapter 5 – 8, 9, 17, 18...
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