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Financial Planning and Forecasting6

Financial Planning and Forecasting6 - A B C D E 33 $74 65...

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Old Exam Questions - Financial Planning and Forecasting Page 31 of 35 Pages A. $74.65 B. $77.65 C. $75.65 D. $78.65 E. $76.65 33. Your company had the following balance sheet for 2007: Assets 2007 Liabilities & Equity 2004 Current Assets $2,400,000 Accounts Payable $600,000 Fixed Assets $1,600,000 Accrued Wages $400,000 Notes Payable $200,000 Long-Term Debt $1,000,000 Total Common Equity $1,800,000 Total Assets $4,000,000 Total Liabilities & Equity $4,000,000 Now assume that in 2007, the company reported sales of $20 million, net income of $400,000, and dividends of $300,000. Also assume that (1) the company anticipates its sales will increase 20 percent in 2008, (2) its dividend payout will remain at 75 percent, and (3) the company is at full capacity, and that all of its assets and spontaneous liabilities will increase proportionately with an increase in sales. Finally, assume the company uses the AFN formula and all additional funds needed (AFN) will come from issuing new long-term debt. Given its forecast, and ignoring financing feedback effects, determine how much long-term debt the company will need to issue in 2008. A. $470,000 B. $500,000 C. $480.000 D. $510,000 E. $490,000 34. You are given below the 2007 year-end financial statements for your firm and have been asked to project the firm’s funding needs for 2008. You may make the following assumptions when making your forecast: 1. Sales are expected to increase by 20 percent over the coming year -- they will increase to $12,000,000. 2. Operating costs are expected to decrease to 58 percent of sales. 3. The interest rate on long-term debt will remain at 10 percent for 2008, but the interest rate on short-term debt, such as notes payable, will go up to 12 percent. 4. The tax rate, currently 35 percent, is expected to increase to 40 percent in 2008. 5. The firm expects to maintain its dividend payout rate at 50 percent.
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