Assume that Splash's profit margin will remain constant at 5 percent and that the company will continue to pay out 60 percent of its earnings as dividends. To the nearest whole dollar, what amount of nonspontaneous, additional funds (AFN) will be needed during the next year? a. $57 b. $51 c. $36 d. $40 e. $48
(9.5) AFN with excess capacity Answer: d Diff: M 21 . A firm has the following balance sheet: Cash $ 10 Accounts payable $ 10 Accounts receivable 10 Notes payable 20 Inventory 10 Long-term debt 40 Fixed assets 90 Common stock 40 Retained earnings 10 Total assets $120 Total liabilities and equity $120 Fixed assets are being used at 80 percent of capacity; sales for the year just ended were $200; sales will increase $10 per year for the next 4 years; the profit margin is 5 percent; and the dividend payout ratio is 60 percent. Assume that underutilized fixed assets cannot be sold. What are the total external financing requirements for the entire 4 years, i.e., the total AFN for the 4-year period? a. $ 4.00 b. $ 2.00 c. -$ 0.80 (surplus) d. -$14.00 (surplus) e. $ 0 (9.5) AFN with excess capacity Answer: a Diff: M 22 . Baxter Box Company's balance sheet showed the following amounts as of December 31st: Cash $ 10 Accounts payable $ 15 Accounts receivable 40 Accruals 5 Inventory 50 Notes payable 20 Net fixed assets 100 Long-term debt 20 Common stock 20 Retained earnings 120 Total assets $200 Total liabilities and equity $200 Last year the firm's sales were $2,000, and it had a profit margin of 10 percent and a dividend payout ratio of 50 percent. Baxter Box operated its fixed assets at 80 percent of capacity during the year. The company expects to increase next year's sales by 37.5 percent, to $2,750, but the profit margin is expected to fall to 3 percent, and the dividend payout ratio is expected to rise to 60 percent. What is Baxter Box's additional funds needed (AFN) for next year? a. $ 7.00 b. -$ 3.00 (surplus) c. $30.50 d. -$97.50 (surplus) e. $18.50
(9.5) Forecasting and ratio changes Answer: a Diff: M 23 . Gemini Beverage has the following historical balance sheet: Cash $ 20 Accounts payable $ 200 Accounts receivable 240 Notes payable 130 Inventory 320 Accruals 30 Total current assets $ 580 Current liabilities $ 360 Net plant & equipment $ 420 Long-term bonds $260 Common stock 270 Retained earnings 110 Total assets $1,000 Total liab. & equity $1,000 Over the next year Gemini's current assets, accounts payable, and accruals will grow in proportion to sales. Last year’s sales were $800 and this year’s sales are expected to increase by 40 percent. The firm will retain $58 in earnings to fund current asset growth, and the rest of the increase will be funded entirely with notes payable. The net plant and equipment account will increase to $500 and will be funded directly by a new equity issue. What will Gemini's new current ratio be after the changes in the firm's financial picture are complete? a. 1.52 b. 1.61 c. 1.26 d. 1.21 e. 1.37 Tough: (9.2) Maximum growth rate Answer: b Diff: T 24 . The Tapley Company is trying to determine an acceptable growth rate in sales. While the firm wants to expand, it does not want to use any external funds to support such expansion due to the particularly high interest rates in the market now.
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