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# 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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