216 Chapter 9Required:The firm operated at full capacity in 20X4. It expects sales to increase by 20percent during 20X5 and expects 20X5 dividends per share to increase toP1.10. Use the projected financial statement method to determine how muchoutside financing is required, developing the firm's pro forma statement offinancial position and income statement, and use AFN as balancing item.b. If the firm must maintain a current ratio of 2.3 and a debt ratio of 40 percent,how much financing, after the first pass will be obtained using notes payable,long-term debt, and common stock?C.Make the second pass financial statements incorporating financing feedbacks,using the ratios in (b). Assume that the interest rate on debt averages 10percent.Problem 8 (Long-term financing needed)At year-end 20X4, total assets for Geneva Corporation were P1.2 million andaccounts payable were P375,000. Sales, which in 20X4 were P2.5 million, areexpected to increase by 25 percent in 20X5. Total assets and accounts payable areproportional to sales and that relationship will be maintained. Geneva typicallyuses no current liabilities other than accounts payable. Common stock amountedto P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sellnew common stock in the amount of P75,000. The firm's profit margin on sales is6 percent; 40 percent of earnings will be paid out as dividends.Required:a.What was Geneva's total debt in 20X4?b. How much new, long-term debt financing will be needed in 20X5?

Here, To Find: Part a. Total debt in year 20X4 =? Part b. New long -term debt financing needed in…

At year-end 20X4, total assets for Geneva Corporation were P1.2 million and accounts payable were P375,000. Sales, which in 20X4 were P2.5 million, are expected to increase by 25 percent in 20X5. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Geneva typically uses no current liabilities other than accounts payable. Common stock amounted to P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sell new common stock in the amount of P75,000. The firm's profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends. Required: a. What was Geneva's total debt in 20X4? b. How much new, long-term debt financing will be needed in 20X5?

At year-end 20X4, total assets for Geneva Corporation were P1.2 million and accounts payable were P375,000. Sales, which in 20X4 were P2.5 million, are expected to increase by 25 percent in 20X5. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Geneva typically uses no current liabilities other than accounts payable. Common stock amounted to P425,000 in 20X4 and retained earnings were P295,000. Geneva plans to sell new common stock in the amount of P75,000. The firm's profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends. Required: a. What was Geneva's total debt in 20X4? b. How much new, long-term debt financing will be needed in 20X5?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

which one is correct please suggest? QUESTION 39 Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends. a. $339,600 b. No financing needed, surplus of $224,400 c. No financing needed, surplus of $524,400 d. $283,200
H3. A firm wishes to maintain an sustainable growth rate of 9 percent and a dividend payout ratio of 64 percent. The ratio of total assets to sales is constant at 0.9, and the profit margin is 10.1 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be? Please show proper step by step calculation
Which one is correct answer please confirm? QUESTION 39 Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends. a. $339,600 b. No financing needed, surplus of $224,400 c. No financing needed, surplus of $524,400 d. $283,200
Assume the firm has a constant dividend payout ratio and a projected sales increase of 10 percent. All costs, assets, and current liabilities vary directly with sales. The firm is currently at full production. What is the external financing need? Currently, the firm’s sales =$5,700, net income is $520, total assets=8890, dividends=156, A/P =990, LTD= 3730, and common stock=2980, and retained earnings =1200. $146.00 $251.20 $379.60 $421.60 $550.30
Question 21 As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D 0 = $0.80; P 0 = $22.50; and g L = 8.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings? a. 11.25% b. 10.69% c. 11.84% d. 12.43% e. 13.05% Muscarella Inc. has the following balance sheet and income statement data: Cash $ 14,000 Accounts payable $ 42,000 Receivables 70,000 Other current liabilities 28,000 Inventories 210,000 Total CL $ 70,000 Total CA $294,000 Long-term debt 70,000 Net fixed assets 126,000 Common equity 280,000 Total assets $420,000 Total liab. and equity $420,000 Sales $280,000 Net income $ 21,000 The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70,…
Q. Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 75% debt and 25% internal equity. Before tax cost of debt is 12.5 % and tax rate is 20%. Risk free rate is rRF = 6% and market risk premium (rm - rRF ) = 8%: What is the beta of the company?
H3. An unlevered firm with 300,000 shares outstanding has net income of $625,000. The firm’s stock sells for $9.50 per share and the book value per share is $12.00. The firm is considering an investment that is expected to cost $1 million and increase net income by $125,000. The cost of the investment will be financed with the issue of new shares. Assume the firm’s price-earnings ratio will remain constant. Does accounting dilution and/or market value dilution take place? Why? Show proper step by step calculation
13. Start-up Industries is a new firm, which has raised $100 million by selling shares of stock. Management expects to earn a 24% rate of return on equity, which is more than the 15% rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm. a. What will be Start-up’s ratio of market value to book value? b. How would that ratio change if the firm can earn only a 10% rate of return on its investments? (Round your answer to 1 decimal place.)
10. [EXCEL] Percent of sales: Given the data for Cattail Corporation in Problem 9, if you assume that all balance sheet items also vary with the change in sales, develop a pro forma balance sheet for Cattail for the next fiscal year. Assuming that the firm did not sell or repurchase stock, what is the cash dividend implied by the pro forma income statement and balance sheet? Problem 9: [EXCEL] Percent of sales: Cattail Corporation's financial statements for the fiscal year just ended are shown below: Cattail Corporation Financial Statements for the Fiscal Year Just Ended Income Statement Balance Sheet Net Sales $ 1,500,000 Assets $ 700,000 Debt $ 600,000 Costs 350,000 Equity 100,000 Net Income $ 1,150,000 Total $ 700,000 Total $ 700,000 Cattail management expects sales to increase by 14 percent next year. Assume that the financial statement accounts vary directly with changes in…
INV3 P6a You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely. Lastly, your estimate of the required return on the firm’s equity is 12%. Hoffman’s recently published annual report shows the following financial relationships: Assets = 1.4 x Equity Current Assets = 1.7 x Current Liabilities Sales = 1.5 x Assets Net Income = 8% x Sales Dividends = 30% x Net Income Earnings per share (Basic) = $0.80 per share Determine the growth rate of the company for the prior and for each of the next two years.
#4 investment An investor estimates that next year's sales for Dursley's Hotels, Inc., should amount to about $105 million. The company has 3.3 million shares outstanding, generates a net profit margin of about 8.8%, and has a payout ratio of 53%. All figures are expected to hold for next year. Given this information, compute the following. a. Estimated net earnings for next year. b. Next year's dividends per share. Note: EPS is an intermediate computation not required as an input below. However, round your computation of EPS to at least two decimal places. c. The expected price of the stock (assuming the P/E ratio is 20.5 times earnings). d. The expected holding period return (latest stock price: $37.25 per share). Note: The dividend will be paid during the holding period. Note: The dividend will be paid during the holding period.
4 Bachelor’s Bus Co. uses the residual dividend model to determine its common dividend payout. This year the company expects its net profit to be P2 million, and it expects to have a 25 percent common dividend payout ratio. The company’s target debt ratio is 40 percent, and the firm is financed with only common equity and debt. What is the company’s forecasted total capital budget for the year? Group of answer choices P3.75 million P3.33 million P1.25 million P2.50 million P2.25 million P5.00 million P3.25 million

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS