CORPORATE FINANCE - CONNECT ACCESS
12th Edition
ISBN: 9781264054893
Author: Ross
Publisher: MCG
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Chapter 3, Problem 21QAP
Calculating EFN The most recent financial statements for Scott, Inc., appear below. Sales for 2020 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the
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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
Use the percentage of sales forecasting method to compute the additional financing
needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to
increase from a current level of $20 million to a new level of $25 million over the
coming year. LSS expects earnings after taxes to equal $1 million over the next
year. LSS intends to pay a $300,000 dividend next year. The current year balance
sheet for LSS is as follows:
Lambrechts Specialty Shops, Inc.
Balance Sheet as of December 31, 20X3
Cash $1,000,000 Accounts payable $3,000,000
Accounts receivable 1,500,000 Notes payable 3,000,000
inventories 6,000,000 Long-term debt 2,000,000
Net fixed assets 3,000,000 Stockholders’ equity 3,500,000
Total Assets $11,500,000 Total…
13. Using Percentage of Sales. The 2019 financial statements for Growth Industries are presented
below. Sales and costs are projected to grow at 20% a year for at least the next 4 years.
Both current assets and accounts payable are projected to rise in proportion to sales. The firm
is currently operating at full capacity, so it plans to increase fixed assets in proportion to sales.
Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm
will maintain a dividend payout ratio of 40. Construct a spreadsheet model for Growth
Industries similar to the one in Spreadsheet 18.1. (LO18-2)
INCOME STATEMENT, 2019
Sales
$200,000
Costs
150,000
$ 50,000
EBIT
Interest expense
10,000
Taxable income
$ 40,000
Taxes (at 21%)
8,400
Net income
$ 31,600
$12,640
$18,960
Dividends
Addition to retained earnings
BALANCE SHEET, YEAR-END, 2019
Assets
Liabilities
Current assets
Current liabilities
$ 3,000
$ 10,000
$ 10,000
Cash
Accounts payable
Accounts receivable
8,000…
Chapter 3 Solutions
CORPORATE FINANCE - CONNECT ACCESS
Ch. 3 - Financial Ratio Analysis A financial ratio by...Ch. 3 - Industry-Specific Ratios So-called same-store...Ch. 3 - Sales Forecast Why do you think most long-term...Ch. 3 - Sustainable Growth In the chapter, we used...Ch. 3 - EFN and Growth Rate Broslofski Co. maintains a...Ch. 3 - Common-Size Financials One tool of financial...Ch. 3 - Asset Utilization and EFN One of the implicit...Ch. 3 - Comparing ROE and ROA Both ROA and ROE measure...Ch. 3 - Ratio Analysis Consider the ratio EBITD/Assets....Ch. 3 - Return on Investment A ratio that is becoming more...
Ch. 3 - Use the following information to answer the next...Ch. 3 - Prob. 12CQCh. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - DuPont Identity If Muenster, Inc., has an equity...Ch. 3 - Equity Multiplier and Return on Equity Synovec...Ch. 3 - Prob. 3QAPCh. 3 - EFN The most recent financial statements for...Ch. 3 - Prob. 5QAPCh. 3 - Sustainable Growth If the Moran Corp. has an ROE...Ch. 3 - Prob. 7QAPCh. 3 - Prob. 8QAPCh. 3 - Prob. 9QAPCh. 3 - Prob. 10QAPCh. 3 - Prob. 11QAPCh. 3 - Prob. 12QAPCh. 3 - External Funds Needed The Optical Scam Company has...Ch. 3 - Days' Sales in Receivables A company has net...Ch. 3 - Prob. 15QAPCh. 3 - Prob. 16QAPCh. 3 - Prob. 17QAPCh. 3 - Prob. 19QAPCh. 3 - Prob. 20QAPCh. 3 - Calculating EFN The most recent financial...Ch. 3 - Prob. 22QAPCh. 3 - Prob. 23QAPCh. 3 - Prob. 26QAPCh. 3 - Prob. 27QAPCh. 3 - Prob. 28QAPCh. 3 - Prob. 29QAPCh. 3 - Prob. 30QAPCh. 3 - Calculate all of the ratios listed in the industry...Ch. 3 - Prob. 2MCCh. 3 - Prob. 3MCCh. 3 - Prob. 4MCCh. 3 - Prob. 5MC
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- Use the percentage of sales forecasting method to compute the additional financing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year. LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows: Lambrechts Specialty Shops, Inc. Balance Sheet as of December 31, 20X3 Cash $1,000,000 Accounts Payable $3,000,000 Accounts Receivable 1,500,000 Notes Payable 3,000,000 Inventories 6,000,000 Long-Term Debt 2,000,000 Net Fixed Assets 3,000,000 Stockholders’ Equity 3,500,00 Total Assets $11,500,000 Total Liabilities and Equity $11,500,000arrow_forwardWhich 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. $283,200arrow_forward(Forecasting financing needs) Beason Manufacturing forecasts its sales next year to be $5.4 million and expects to earn 4.9 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): • Current assets are equal to 19.8 percent of sales, and fixed assets remain at their current level of $0.8 million. • Common equity is currently $0.78 million, and the firm pays out half of its after-tax earnings in dividends. The firm has short-term payables and trade credit that normally equal 11.8 percent of sales, and it has no long-term debt outstanding. What are Beason's financing needs for the coming year? Beason's expected net income for next year is $ (Round to the nearest dollar.)arrow_forward
- Use the AFN equation to estimate Hatfield’s required new external capital for 2020 if the sales growth rate is 11.1%. Assume that the firm’s 2019 ratios will remain the same in 2020. (Hint: Hatfield was operating at full capacity in 2019.)arrow_forwardSales and costs are projected to grow at 30% a year for at least the next 4 years. Both current assets and accounts payable are projected to rise in proportion to sales. The firm is currently operating at 75% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.40. What is the required external financing over the next year?arrow_forwardConsider a company that is projected to generate revenues of $104 million next year. Analysts expect revenues to grow at a 4.6% annual rate for the following two years (until the end of year 3) and then at a stable rate of 2.5% in perpetuity. If the company is expected to have a gross margin of 75%, operating margin of 35%, net margin of 25%, tax rate of 16.4%, and reinvestment rate of 34%, what is its expected free cash in four years from today? Answer in millions, rounded to one decimal placearrow_forward
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