CH04 - 4 Long-Term Financial Planning and Growth Chapter 04...

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Unformatted text preview: 4 Long-Term Financial Planning and Growth Chapter 04 Index of Sample Problems Slide # 02 - 05 Plowback and dividend payout ratios Slide # 06 - 08 Constant growth planning Slide # 09 - 13 Percentage of sales planning Slide # 14 - 16 External financing need Slide # 17 - 23 Pro forma with external financing Slide # 24 - 27 Capacity level Slide # 28 - 29 Internal growth Slide # 30 - 34 Sustainable growth 2: Plowback and dividend payout ratios Your company has net income of $1,600 for the year. You paid out $400 in dividends to your stockholders. What is the dividend payout ratio? What is the plowback ratio? What is the dollar increase in retained earnings? 3: Plowback and dividend payout ratios Your company has net income of $1,600 for the year. You paid out $400 in dividends to your stockholders. 25 . 600 , 1 $ 400 $ income Net dividends Cash ratio payout Dividend = = = .75 .25- 1 ratio payout dividend- 1 ratio Plowback = = = $1,200 .75 $1,600 ratio plowback income Net earnings retained o Addition t = = = 4: Plowback and dividend payout ratios This year your company expects net income of $2,800. You now adhere to a 60% plowback ratio. What is the expected dollar increase in retained earnings? How much do you expect to pay in dividends? What is the dividend payout ratio? 5: Plowback and dividend payout ratios This year your company expects net income of $2,800. You now adhere to a 60% plowback ratio. 120 , 1 $ 680 , 1 $ 800 , 2 $ earnings retained o Addition t income Net paid Dividends =- =- = 40% $2,800 $1,120 income Net dividends Cash ratio payout Dividend = = = $1,680 .60 $2,800 ratio plowback income Net earnings retained o Addition t = = = Planning Accomplishments Interactions Options Investing & Financing, scenarios Avoid surprises Feasibility and internal consistency Conclusions goals & priorities 6: Constant growth planning Income Statement Current Projected Sales $800 $_______ Costs $700 $_______ Taxable income $100 $_______ Taxes (34%) $ 34 $_______ Net income $ 66 $_______ Balance Sheet Current Projected Current Projected Assets $400 $_______ Debt $150 $_______ Equity $250 $_______ Total $400 $_______ Total $400 $_______ You expect your sales, costs and assets to grow by 10% next year. You will not pay any dividends. Can you complete the pro forma statement? Round all amounts to whole dollars. 7: Constant growth planning Income Statement Current Projected Sales $800 $880 Costs $700 $770 Taxable income $100 $110 Taxes (34%) $ 34 $ 37 Net income $ 66 $ 73 Balance Sheet Current Projected Current Projected Assets $400 $440 Debt $150 $117 Equity $250 $323 Total $400 $440 Total $400 $440 The computations are shown on the next slide. 8: Constant growth planning $323 $73 $250 income net Projected equity Current equity Projected = + = + = $440 assets Total equity s liabilitie Total = = + $117 $323- $440 equity- equity) s liabilitie (Total Debt = = + = $440 $400(1.10) Assets )...
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This note was uploaded on 10/16/2011 for the course FINANCE 101 taught by Professor Sanghoonlee during the Three '11 term at University of Wollongong, Australia.

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CH04 - 4 Long-Term Financial Planning and Growth Chapter 04...

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