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fm14 3 - /S This firm’s capital intensity ratio is higher...

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Answers and Solutions: 14 - 3 SOLUTIONS TO END-OF-CHAPTER PROBLEMS 14-1 AFN = (A * /S 0 ) S - (L * /S 0 ) S - MS 1 (1 - d) = 000 , 000 , 5 $ 000 , 000 , 3 $ $1,000,000 - 000 , 000 , 5 $ 000 , 500 $ $1,000,000 - 0.05($6,000,000)(1 - 0.7) = (0.6)($1,000,000) - (0.1)($1,000,000) - ($300,000)(0.3) = $600,000 - $100,000 - $90,000 = $410,000. 14-2 AFN = 000 , 000 , 5 $ 000 , 000 , 4 $ $1,000,000 – (0.1)($1,000,000) – ($300,000)(0.3) = (0.8)($1,000,000) - $100,000 - $90,000 = $800,000 - $190,000 = $610,000. The capital intensity ratio is measured as A
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Unformatted text preview: * /S . This firm’s capital intensity ratio is higher than that of the firm in Problem 14-1; therefore, this firm is more capital intensive--it would require a large increase in total assets to support the increase in sales. 14-3 AFN = (0.6)($1,000,000) - (0.1)($1,000,000) - 0.05($6,000,000)(1 - 0) = $600,000 - $100,000 - $300,000 = $200,000. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed....
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