L_7 - Chapter Outline Lecture 7 Long-Term Financial...

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Chapter Outline Lecture 7 Long-Term Financial Planning and Growth Financial Planning: The Percentage of Sales Approach
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Financial Planning Model Ingredients Sales Forecast Projected Future Sales; Drives the model Pro Forma Statements The output summarizing different projections Asset Requirements Investment needed to support sales growth Financial Requirements and Constraints Projected Financial Arrangements The External Financing Needed Designated source(s) of external financing Raising Debt or Equity; Choosing dividend policies
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Example: A Simple Financial Planning Model Recent Financial Statements Income statement Balance sheet Sales $100 Assets $50 Debt $20 Costs 90 Equity 30 Net Income $ 10 Total $50 Total $50 Assume that: 1. sales are projected to rise by 25% 2. costs and assets grow at the same rate as sales 3. the debt/equity ratio stays at 2/3 4. the firm doesn’t issue new equity but raise debt Q: What’s the Dividends to be paid out?
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Example: A Simple Financial Planning Model (concluded) Pro Forma Financial Statements Income statement Sales $125 Costs 112.5 Net $ 12.5 Q:What’s the Dividends to be paid out? A: Projected net income is $12.50, but equity only increases by $7.50. The difference, $5.00 = $12.50-7.5 paid out in cash dividends . Balance sheet Assets $62.5 Debt $25 Equity 37.5 Total $ 62.5 Total $ 62.5
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Example: A Simple Financial Planning Model Recent Financial Statements Income statement Balance sheet Sales $100 Assets $50 Debt $20 Costs 90 Equity 30 Net Income $10 Total $50 Total $50 Assume that: 1. sales are projected to rise by 25% 2. costs and assets grow at the same rate as sales 3. the firm doesn’t raise new debt (debt unchanged) and doesn’t raise new equity either Q:What’s the Dividends to be paid out?
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This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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L_7 - Chapter Outline Lecture 7 Long-Term Financial...

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