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

different?

(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?

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

different?

(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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