Problem 2. Euro Designs, Inc., expects sales during 2013 to rise from the 2012 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2013 is expected to drop to $325,000. The firm plans to increase its cash dividend payments during 2013 to $320,000. The company's year-end 2012 income statement follows. Euro Designs, Inc. Income Statement for the Year Ended December 31, 2012 Sales revenue $3,500,000 Less: Cost of goods sold 1,925,000 Gross profits $1,575,000 Less: Operating expenses 420,000 Operating profits Less: Interest expense $1,155,000 400,000 $ 755,000 Net profits before taxes Less: Taxes (rate = 40%) 302,000 $ 453,000 Net profits after taxes Less: Cash dividends 250,000 To retained earnings $ 203,000 a. Use the percent-of-sales method to prepare a 2013 pro forma income statement for Euro Designs, Inc. Explain why th Horoptimot 2012 pro fo

Problem 2. Euro Designs, Inc., expects sales during 2013 to rise from the 2012 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2013 is expected to drop to $325,000. The firm plans to increase its cash dividend payments during 2013 to $320,000. The company's year-end 2012 income statement follows. Euro Designs, Inc. Income Statement for the Year Ended December 31, 2012 Sales revenue $3,500,000 Less: Cost of goods sold 1,925,000 Gross profits $1,575,000 Less: Operating expenses 420,000 Operating profits Less: Interest expense $1,155,000 400,000 $ 755,000 Net profits before taxes Less: Taxes (rate = 40%) 302,000 $ 453,000 Net profits after taxes Less: Cash dividends 250,000 To retained earnings $ 203,000 a. Use the percent-of-sales method to prepare a 2013 pro forma income statement for Euro Designs, Inc. Explain why th Horoptimot 2012 pro fo

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Description: Problem 2. Euro Designs, Inc., expects sales during 2013 to rise from the 2012 level of $3.5 million to $3.9 million.Because of a scheduled large loan payment, the interest expense in 2013 is expected to drop to $325,000. The firmplans to increase i

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 9P

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AFN Equation Refer to Problem 9-1. Return to the assumption that the company had 5 million in assets at the end of 2018, 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 Problem 9-1?
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?
.3- Euro Designs, Inc. Sales to increase in 2016 from the 2015 level of $ 3.5 million to $ 3.9 million. Due to large loan repayment, interest expense is expected to decrease in 2016 to $ 325,000. The company plans to increase its cash dividend payments from 2016 to $ 320,000. Below is the income statement for the end of 2015. Euro Designs, Inc., Income Statement for the Year Ended December 31, 2015 Sales revenue $3,500,000 Less: Cost of goods sold 1,925,000 Gross profits $1,575,000 Less: Operating expenses 420,000 Operating profits $1,155,000 Less: Interest expense 400,000 Net profits before taxes $ 755,000 Less: Taxes (rate = 40%) 302,000 Net profits after taxes $ 453,000 Less: Cash dividends 250,000 To retained earnings $ 203,000 Use the percentage of sales method to prepare the 2016 Initial Income Statement for Euro Designs, Inc. Explain why the statement…
Please Show Answers: Plank’s Plants had net income of $10,000 on sales of $100,000 last year. The firm paid a dividend of $400. Total assets were $600,000, of which $300,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
H3. please show proper step by step calculation Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 60 percent and the probability of a recession is 40 percent. It is projected that the company will generate a total cash flow of $193 million in a boom year and $84 million in a recession. The company's required debt payment at the end of the year is $118 million. The market value of the company’s outstanding debt is $91 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the…
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
4. Local Produce a company selling locally sourced food products had net income of $6,000 on sales of $150,000 last year. The firm paid a dividend of $2000. Total assets at the end of last year were $400,000, of which $100,000 was financed by debt. What is the firm’s sustainable growth rate? If the firm grows at its sustainable growth rate, how much debt will have to be raised in the coming year? Confirm that the firm maintains its current debt/asset ratio. What would be the maximum possible growth rate if the firm did not sell any new debt or equity in the coming year?
1. Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2016 to $9.2 million in 2017. Its assets totaled $5 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. 2. Refer to question 1, what would be the additional funds needed if the company's year-end 2016 assets had been $7 million? Assume that all other numbers, including sales, are the same as in question 1 and that the company is operating at full capacity. Why is this AFN different from the one you found in question 1? Is the company's "capital intensity" ratio the same or different? 3. Refer to…
Plank’s Plants had net income of $10,000 on sales of $40,000 last year. The firm paid a dividend of $2,300. Total assets were $700,000, of which $350,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
(B) Based on the following information, how much does the company need in external funds for the upcoming fiscal year? The company has Sales $ 5,700, Costs 4,200, Current assets 3,900, Fixed assets 8,100, Current liabilities 2,200, Long-term debt 3,750, and Equity 6,050. Sales increase 15% for the upcoming fiscal year. Payout ratio is 40% and Tax rate is 34%.
(b) The company paid $1 million of dividends in the past year. Its market capitalization was $10 million. Based on his own analysis, Jack suggests that the company increases its use of equity financing, because “debt costs 12.5 percent, but equity only costs 10 percent; thus, equity is cheaper.” Appraise Jack’s statement.
Company XYZ, an all-equity firm, reported incremental revenues (net income) of $336 million for the most recent year. The firm had depreciation expenses of $141 million and capital expenditures of $196 million. The company also had an increase in net working capital of $20 million. What is the free cash flow? Enter your answer in dollars and round to the nearest dollar.