FI515_Homework6_BrianLin - Brian Lin D01278742 Week 6...

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Brian Lin D01278742 Week 6 Homework Chapter 12 Questions Problem 12-1 Baxter Video Product’s sales are expected to increase by 20% from $5M in 2010 to $6M in 2011. Its assets totaled $3M at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1M, consisting of $250K of accounts payable, $500K of notes payable, and $250K of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year. S 0 = $5,000,000 g = 20% S 1 = S 0 * (1+g) S 1 = $5M * (1+20%) S 1 = $6,000,000 gS 0 = $1,000,000 (Change in Sales) A 0 * = $3,500,000 A 0 */S 0 = 70% L 0 * = $1,000,000 L 0 */S 0 = 20% Profit Margin = 5% Payout Ratio (POR)= 70% AFN = (A 0 */S 0 )∆S – (L 0 */S 0 ) ∆S – S 1 * M * (1-POR) AFN = (70%*1,000,000) – (20%*1,000,000) – ($6,000,000*5%*(1-70%)) AFN = 700,000 – 200,000 – 90,000
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This note was uploaded on 10/13/2011 for the course MAFM FI516 taught by Professor Anthonycriniti during the Spring '10 term at Keller Graduate School of Management.

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FI515_Homework6_BrianLin - Brian Lin D01278742 Week 6...

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