Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 2, Problem 6MC
Calculate Computron’s
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A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?
a. The company's profit margin increases.
b. The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
c. The company increases its dividend payout ratio.
d. The company decides to stop taking discounts on purchased materials.
e. The company begins to pay employees monthly rather than weekly.
Quick Grow is in an expanding market , and its sales are increasing by 25% per year. Would the net working capital to be increasing or decreasing, explain why?
A company wants to invest $619,932 today. The expected returns in years 1, 2, and 3 are $244,539, $175,421, and $341,884, respectively. If the rate of return on investment must be at least 15%, and the probability of commercial and technical success are 0.89 and 0.86, respectively. What is the maximum expenditure justified that the company may spend?
Chapter 2 Solutions
Financial Management: Theory & Practice
Ch. 2 - Define each of the following terms:
Annual report;...Ch. 2 - Prob. 2QCh. 2 - If a typical firm reports 20 million of retained...Ch. 2 - What is operating capital, and why is it...Ch. 2 - Prob. 6QCh. 2 - Prob. 7QCh. 2 - Prob. 8QCh. 2 - An investor recently purchased a corporate bond...Ch. 2 - Corporate bonds issued by Johnson Corporation...Ch. 2 - Hollys Art Galleries recently reported 7.9 million...
Ch. 2 - Nicholas Health Systems recently reported an...Ch. 2 - Kendall Corners Inc. recently reported net income...Ch. 2 - In its most recent financial statements,...Ch. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 -
Carter Swimming Pools has $16 million in net...Ch. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - The Shrieves Corporation has 10,000 that it plans...Ch. 2 - The Moore Corporation has operating income (EBIT)...Ch. 2 - The Berndt Corporation expects to have sales of...Ch. 2 - Use the following income statement of Elliott Game...Ch. 2 - Prob. 16PCh. 2 - Athenian Venues Inc. just reported the following...Ch. 2 - Rhodes Corporations financial statements are shown...Ch. 2 - The Bookbinder Company had 500,000 cumulative...Ch. 2 - Begin with the partial model in the file Ch02 P20...Ch. 2 - Begin with the partial model in the file Ch02 P21...Ch. 2 -
Jenny Cochran, a graduate of the University of...Ch. 2 - Jenny Cochran, a graduate of the University of...Ch. 2 - Jenny Cochran, a graduate of the University of...Ch. 2 - What is Computrons net operating profit after...Ch. 2 - What is Computron’s free cash flow? What are...Ch. 2 - Calculate Computron’s return on invested capital...Ch. 2 - Jenny Cochran, a graduate of the University of...Ch. 2 - What happened to Computron’s Market Value Added...Ch. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 11MCCh. 2 - Prob. 12MC
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- Calculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think Computron’s growth added value?arrow_forwardHow would an increase in each of the following factors affect the AFN?1. Payout ratio2. Capital intensity ratio, A0*/S03. Profit margin4. Days sales outstanding, DSO5. Sales growth rateIs it possible for the AFN to be negative? If so, what would this indicate?If excess capacity exists, how would that affect the calculated AFN?arrow_forward(a)What is the significance of the internal growth rate? The sustainablegrowthrate? (b)Assume that Angostura is currently operating at fullcapacity. -All costs/expenses/income and net working capital vary directly withsales/revenue. -Interest Expenses will remain unchanged. -The tax rate and the dividend pay-out ratiowill remainconstant.How much additional debt is required, if any, if no new equity is raised and sales/revenue are projected to increaseby10%?(20Marks) NOTE:-Tax Rate must be calculated (2 decimalplaces) -Pro forma statements are to be prepared (Round all figures to the nearestdollar) (c)Based on your answer from (b) above, how can Angostura obtain the external financing needed (if necessary), or, if the company has excess financing, how can they utilize this?arrow_forward
- Through a simulation model, the management consultants of ZZZ Corporation estimates that the free cashflows of the to-be-acquired firms is 2,700,000. It’s forecasted operating income growth rate is 4%while its forecasted growth in net income is 5%. ZZZ requires a return on the firm at 22%. Based on those information, what is the value of the firm?arrow_forwardWeatherford Industries Inc. has the following ratios:A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and payout ratio = 0.45, or 45%. Sales lastyear were $100 million. Assuming that these ratios will remain constant, use the AFN equationto determine the maximum growth rate (the sustainable growth rate) Weatherford canachieve without having to employ nonspontaneous external funds.arrow_forwardSuppose that your company’s weighted-average cost of capital is 9 percent. Your company is planning to undertake a project with an internal rate of return of 12%, but you believe that this project is not a good investment for the firm. What logical arguments might you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with expected returns higher than your company’s cost of capital will destroy value? If so, how?arrow_forward
- A company has a required return of 12%, a profit margin of 4%, a D/E ratio of 0.5 and total asset turnover of 2. Annual dividends last year were $2.00. A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio. B) If the company would have changed its dividend payout ratio to 60%, what would happen to the price and forward P/E ratio? C) What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)arrow_forwardThe Stieben Company has determined that the following will be true next year: T(ratio of total assets of sales)=1 P(net profit of margin)=5% d(dividend pay out ratio)=50% L(debt equity ratio)=1 a) What is Stieben's sustainable growth rate in sales? b)Can Stieben's actual growth rate in sales be different from its sustainable growth rate? Why or why not? c) How can Stieben change its sustainable growth?arrow_forwardIn an effort to increase its customer base, a company set the project MARR at exactly the WACC. If equity capital costs 8% per year and debt capital costs 12.5% for the project, what is the equity-debt percentage mix of capital required to make the WACC = 10%?arrow_forward
- A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to DECREASE? Group of answer choices: The company begins to pay employees weekly rather than monthly. The company decides to take discounts on purchased materials. The company’s profit margin increases. The company learns that it has no excess capacity. The company increases its dividend payout ratio.arrow_forwardCan you answer these in Excel (and show any calculation formulas). See the attached image for the information. 1. What is the payack period, NPV, IRR? 2. What happens to the NPV and IRR if initial capital goes up 30%? 3. How much would the selling price have to increase to compensate for 30% in capital costs to the original level in 1.? 4. What is your recomendation?arrow_forward1 Suppose you have a firm with investor-supplied capital of $30 million. Further suppose that the WACC of the firm is 9%, and you are given the following income statement of the firm. Show work for all parts requiring computation. sales 26 M operating cost 16 m interest expense 3m Taxes (44%) What is the net income of the firm? What is the EVA of the firm? What is the difference between EVA and MVA?arrow_forward
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