Chapter 16 - Chapter 16 Solutions to End-of-Chapter...

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Chapter 16 Solutions to End-of-Chapter Problems 16-1 AFN = (A*/S 0 ) S – (L*/S 0 ) S – MS 1 (RR) $5,000,000 $3,000,000 $1,000,000 –  $5,000,000 $500,000 $1,000,000 – 0.05($6,000,000)(0.3) = (0.6)($1,000,000) – (0.1)($1,000,000) – ($300,000)(0.3) = $600,000 – $100,000 – $90,000 = $410,000. 16-2 AFN =  (0.3) ($300,000)   00,000) (0.1)($1,0 $1,000,000   $5,000,000 $4,000,000 - - = (0.8)($1,000,000) – $100,000 – $90,000 = $800,000 – $190,000 = $610,000. The capital intensity ratio is measured as A*/S 0 .  This firm’s capital intensity ratio is higher  than that of the firm in Problem 16-1; therefore, this firm is more capital intensive—it would  require a large increase in total assets to support the increase in sales. 16-3 AFN = (0.6)($1,000,000) – (0.1)($1,000,000) – 0.05($6,000,000)(1) = $600,000 – $100,000 – $300,000 = $200,000. Under this scenario the company would have a higher level of retained earnings, which  would reduce the amount of additional funds needed. 16-4 a. 2005 Forecast   Basis            2006                                                                                     Sales $700 ×  1.25 $875.00 Oper. costs   500 ×  0.70 Sales   612.50 EBIT $200 $262.50 Interest     40     40.00 EBT $160 $222.50 Taxes (40%)     64     89.00 Net income $  96 $133.50 Dividends (33.33%) $  32 $  44.50
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Addit. to R/E $  64 $  89.00 b. Dividends = ($44.50 – $32.00)/$32.00 = 39.06%. 16-5 Sales = $5,000,000,000; FA = $1,700,000,000; FA are operated at 90% capacity. a. Full capacity sales = $5,000,000,000/0.90 = $5,555,555,556. b. Target FA/S ratio = $1,700,000,000/$5,555,555,556 = 30.6%. c. Sales increase 12%;  FA = ? S 1  = $5,000,000,000  ×  1.12 = $5,600,000,000. No increase in FA up to $5,555,555,556. FA = 0.306  ×  ($5,600,000,000 – $5,555,555,556) = 0.306  ×  ($44,444,444) = $13,600,000. 16-6 Sales = $300,000,000; g Sales  = 12%; Inv. = $25 + 0.125(Sales). S 1  = $300,000,000  ×  1.12 = $336,000,000. Inv. = $25 + 0.125($336) = $67 million. Sales/Inv. = $336,000,000/$67,000,000   5.0149 = 5.01. 16-7 Actual     Forecast Basis Pro   Forma Sales $3,000 ×  1.10 $3,300 Oper. costs excluding depreciation    2,450     ×  0.80 Sales                                                                               2,640  
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This homework help was uploaded on 04/07/2008 for the course FNBSLW 344 taught by Professor Bocksteigle during the Spring '08 term at Wisc Whitewater.

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Chapter 16 - Chapter 16 Solutions to End-of-Chapter...

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