fm14 5 - $ 375,000 0.15 $ 468,750 Long-term debt 105,000...

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Answers and Solutions: 14 - 5 b. Assets/Sales (A * /S) = $1,200,000/$2,500,000 = 48%. L * /Sales = $375,000/$2,500,000 = 15%. 2006 Sales = (1.25)($2,500,000) = $3,125,000. AFN = (A*/S)( S) - (L*/S)( S) - MS 1 (1 - d) - New common stock = (0.48)($625,000) - (0.15)($625,000) - (0.06)($3,125,000)(0.6) - $75,000 = $300,000 - $93,750 - $112,500 - $75,000 = $18,750. Alternatively, using the percentage of sales method: Forecast Basis % Additions (New 2007 2008 Sales Financing, R/E) Pro Forma Total assets $1,200,000 0.48 $1,500,000 Current liabilities
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Unformatted text preview: $ 375,000 0.15 $ 468,750 Long-term debt 105,000 105,000 Total debt $ 480,000 $ 573,750 Common stock 425,000 75,000* 500,000 Retained earnings 295,000 112,500** 407,500 Total common equity $ 720,000 $ 907,500 Total liabilities and equity $1,200,000 $1,481,250 AFN = Long-term debt = $ 18,750 *Given in problem that firm will sell new common stock = $75,000. ** PM = 6%; Payout = 40%; NI 2008 = $2,500,000 x 1.25 x 0.06 = $187,500. Addition to RE = NI x (1 - Payout) = $187,500 x 0.6 = $112,500....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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