How much is the increase in retained earnings that will contribute to cover the increase in asset?
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- Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
- Lux Co. recently reported sales of P100 million, and net income equal to P5 million. The company has P70 million in total assets. Over the next year, the company is forecasting a 25 percent increase in sales. Since the company is at full capacity, its assets must increase in proportion to sales. The company also estimates that if sales increase 20 percent, spontaneous liabilities will increase by P2.1 million. If the company’s sales increase, its profit margin will remain at its current level. The company’s dividend payout ratio is 45 percent. Based on the AFN formula, how much additional capital must the company raise in order to support the 20 percent increase in sales?Bulldogs Inc. recently reported net income of P5,000,0000. The firm has P40,000,000 total assets. Next year, National Inc. is forecasting a 20% increase in sales. The firm also estimates that if sales increase by 20%, spontaneous liabilities will increase by P950,000. The retention ratio is maintained at 75%. If the sales increase, the profit margin will remain at its current level. The company is operating at full capacity. How much is the increase in retained earnings that will contribute to cover the increase in asset? A. 4,500,000 B. 36,000,000 C. 750,000 D. 3,750,000Sunny Co. recently reported sales of P100 million, and net income of P10 million. The firm has P80 million total assets. Next year, Sunny Co. is forecasting a 35% increase in sales. The firm also estimates that if sales increase by 35%, spontaneous liabilities will increase by P5 million. The dividend payout ratio is determined to be 30%. If the sales increase, the profit margin will remain at its current level. The company is at full capacity and assets must increase in direct proportion to sales. 1) How much is the increase in retained earnings? 2) using AFN, how much additional capital must the firm raise in order to support the forecasted percent increase in sales?
- Inc. recently reported net income of P5,000,0000. The firm has P40,000,000 total assets. Next year, Inc. is forecasting a 20% increase in sales. The firm also estimates that if sales increase by 20%, spontaneous liabilities will increase by P950,000. The retention ratio is maintained at 75%. If the sales increase, the profit margin will remain at its current level. The company is operating at full capacity. How much is the increase in retained earnings that will contribute to cover the increase in asset? 36,000,000 750,000 3,750,000 4,500,000Finlay Corporation had sales this year of $3,270 million, and sales are expected to grow by 20 percent next year. Next year the company expects cost of goods sold to be 60 percent of sales, selling expenses to be $40 million per month, depreciation to be $10 million per month, and interest expense to be $24 million per month. Taxes are computed at 21 percent. What is Finlay's expected net income next year?Antivirus Inc. expects its sales next year to be $3,100,000. Inventory and accounts receivable will increase by $540,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.