fm14 6 - Target FA/S ratio = $500/$2,000 = 0.25. Target FA...

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Answers and Solutions: 14 - 6 14-6 Cash $ 100.00 × 2 = $ 200.00 Accounts receivable 200.00 × 2 = 400.00 Inventories 200.00 × 2 = 400.00 Net fixed assets 500.00 + 0.0 = 500.00 Total assets $1,000.00 $1,500.00 Accounts payable $ 50.00 × 2 = $ 100.00 Notes payable 150.00 150.00 + 360.00 = 510.00 Accruals 50.00 × 2 = 1 00.00 Long-term debt 400.00 400.00 Common stock 100.00 100.00 Retained earnings 250.00 + 40 = 290.00 Total liabilities and equity $1,000.00 $1,140.00 AFN $ 360.00 Capacity sales = Sales/0.5 = $1,000/0.5 = $2,000.
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Unformatted text preview: Target FA/S ratio = $500/$2,000 = 0.25. Target FA = 0.25($2,000) = $500 = Required FA. Since the firm currently has $500 of fixed assets, no new fixed assets will be required. Addition to RE = M(S 1 )(1 - Payout ratio) = 0.05($2,000)(0.4) = $40. 14-7 a. AFN = (A * /S)( S) (L * /S)( S) MS 1 (1 d) = 350 $ 5 . 122 $ ($70) - 350 $ 5 . 17 $ ($70) - 350 $ 5 . 10 $ ($420)(0.6) = $13.44 million....
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