APT Security’s sales are expected to increase from R4 m in 2009 to
R5m in 2010, or by 25%. Its assets totaled R3 m at the end of 2009. APT
is at full capacity, so its assets must grow at the same rate as projected
sales. At the end of 2009, current liabilities were R800 000, consisting of
R200 000 of accounts payable, R400 000 of notes payable, and R200
000 of accruals. The after-tax profit margin is forecasted to be 5%, and
the forecasted payout ratio is 60%. Use this information to answer
questions (a), (b) and (c) below.
(a) Use the AFN formula to forecast APT Security’s additional funds
needed for the coming year.
(b) What would be the additional funds needed if APT’s
year end 2009 assets had been R3.5 m? Assume that all other
numbers are the same. Why is this AFN different from the one you
found in (a) above? Is the company’s “capital intensity” the same or
(c) Return to the assumption that the company had R3 m in assets at
the end of 2009, but now assume that the company pays no
dividends. Under these assumptions, what would be the
additional funds needed for the coming year? Why is this AFN
different from the one you found in (a) above?
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