Finance: Planning and Forecasting

1305 WordsFeb 27, 20156 Pages
PROBLEMS Carter Corporation’s sales are expected to increase from $5 million in 2006 to $6 million in 2007 or by 20 percent. Its assets totaled $3 million at the end of 2006. Carter is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2006, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5 percent, and the forecasted payout ratio is 70 percent. Use this information to answer Problems 9-1, 9-2, and 9-3. 9-1 Use the AFN formula to forecast Carter’s additional funds needed for the AFN Formula…show more content…
Upton paid dividends of $4.2 million to common stockholders. The firm is operat- ing at full capacity. Assume that all ratios remain constant. a. If sales are projected to increase by $70 million, or 20 percent, during 2007, use the AFN equation to determine Upton’s projected external capital requirements. b. Construct Upton’s pro forma balance sheet for December 31, 2007. Assume that all external capital requirements are met by bank loans and are reflected in notes payable. Assume Upton’s profit margin and dividend payout ratio remain constant. 14-5 a. AFN = (A*/S)(S) – (L*/S)(S) – MS1(1 – d) = ($70) - ($70) - ($420)(0.6) = $13.44 million. b. Upton Computers Pro Forma Balance Sheet December 31, 2005 (Millions of Dollars) Forecast Pro Forma Basis % after 2004 2005 Sales Additions Pro Forma Financing Financing Cash $ 3.5 0.0100 $ 4.20 $ 4.20 Receivables 26.0 0.7430 31.20 31.20 Inventories 58.0 0.1660 69.60 69.60 Total

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