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# 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)( Δ S) – (L * /S)( Δ 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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