Chap3 - Chapter 3: Financial Planning and Growth 3.2...

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Chapter 3: Financial Planning and Growth 3.2 Projected Sales are 110% of current sales, so current sales are: S = 330 million / 1.10 = 300 million and S = 300 million x 10% = $30 million a. Book Solution: For external funds needed (in millions) : Current Assets = 25% Sales = .25(30) Fixed Assets = 150% Sales = 1.50(30) Short Term Debt = 40% Sales = .40(30) Long Term Debt = 45% Sales = .45(30) and using the formula from the book: ( 29 ( 29 Assets Debt EFN Sales Sales ProfitMargin Sales 1- DvdPayout Sales Sales = - - ÷ ÷ = (25% +150%) x 30 - (40% + 45%) x 30 - (12% x 330) (1 - 40%) = $3.24 million Alternative Solution: We may use the formula from class with T=1.75, D=17/18, p=0.12, d=0.4, and S 0 =300. To get this value for D, try to express the ratio of liabilities to assets (which we can get from the information given in the problem) in terms of the debt-equity ratio. Using this formula, we get 3.24, which agrees with the book’s solution. b. Current assets = 25% x 330 / (1 + 10%) = 75 Fixed assets = 150% x 330 / (1+10%) = 450 Total assets = Current assets + Fixed assets = 75 + 450 = $525 million Short term debt = 40% x 330 / (1+10%) = 120
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This note was uploaded on 11/02/2011 for the course ACTSC 371 taught by Professor Wood during the Fall '08 term at Waterloo.

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Chap3 - Chapter 3: Financial Planning and Growth 3.2...

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