GEN CMB LL CORP FINC; CNCT
11th Edition
ISBN: 9781259724145
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
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 3, Problem 23QP
Summary Introduction
To explain: The external funds needed for next year, if the firms kept debt equity ratio constant.
External Funds:
The external funds refer to the funds that are beingprovided to the business or company from outside. These funds could be short-term that is for the period of less than 1 year or long-term that is for the period of more than 1 year, which is decided based on the need of the funds.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You’ve collected the following information about Odyssey, Inc.:Sales =$165,000Net income = $14,800Dividends = $9,300Total debt = $68,000Total equity = $51,000What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt –equity ratio? What growth rate could be supported with no outside financing at all?
A firm wishes to maintain an sustainable growth rate of 12 percent and a dividend payout ratio of 50 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 8.6 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?
Could you please help with calculating the EFN for 10, 15, and 40 percent growth rates.
The most recent financial statements for Crosby, Incorporated, follow. Interest expense and short-term debt will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant.
CROSBY, INCORPORATED
2020 Income Statement
Sales
$ 754,000
Costs
610,000
Other expenses
24,500
Earnings before interest and taxes
$ 119,500
Interest paid
10,400
Taxable income
$ 109,100
Taxes (21%)
22,911
Net income
$ 86,189
Dividends
$ 42,540
Addition to retained earnings
43,649
CROSBY, INCORPORATED
Balance Sheet as of December 31, 2020
Assets
Liabilities and Owners’ Equity
Current assets
Current…
Chapter 3 Solutions
GEN CMB LL CORP FINC; CNCT
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 Wilkinson, Inc., has an equity...Ch. 3 - Equity Multiplier and Return on Equity Synovec...Ch. 3 - Using the DuPont Identity Y3K, Inc., has sales of...Ch. 3 - EFN The most recent financial statements for...Ch. 3 - Sales and Growth The most recent financial...Ch. 3 - Sustainable Growth If the Hunter Corp. has a ROE...Ch. 3 - Sustainable Growth Assuming the following ratios...Ch. 3 - Calculating EFN The most recent financial...Ch. 3 - External Funds Needed Dahlia Colby, CFO of...Ch. 3 - Sustainable Growth Rate The Wintergrass Company...Ch. 3 - Return on Equity Firm A and Firm B have debt-total...Ch. 3 - Ratios and Foreign Companies Prince Albert Canning...Ch. 3 - External Funds Needed The Optical Scam Company has...Ch. 3 - Days Sales in Receivables A company has net income...Ch. 3 - Ratios and Fixed Assets The Whisenhunt Company has...Ch. 3 - Calculating the Cash Coverage Ratio Panda Inc.s...Ch. 3 - Prob. 17QPCh. 3 - Prob. 18QPCh. 3 - Prob. 19QPCh. 3 - Fixed Assets and Capacity Usage For the company in...Ch. 3 - Calculating EFN The most recent financial...Ch. 3 - Prob. 22QPCh. 3 - Prob. 23QPCh. 3 - EFN and Internal Growth Redo Problem 21 using sale...Ch. 3 - Prob. 25QPCh. 3 - Prob. 26QPCh. 3 - Prob. 27QPCh. 3 - Sustainable Growth Rate Based on the results in...Ch. 3 - Prob. 29QPCh. 3 - Prob. 30QPCh. 3 - Prob. 1MCCh. 3 - Prob. 2MCCh. 3 - Prob. 3MCCh. 3 - Prob. 4MCCh. 3 - Prob. 5MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Dividend Payout The Wei Corporation expects next year’s net income to be $15 million. The firm is currently financed with 40% debt. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei’s dividend payout ratio be next year?arrow_forwardH3. 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 calculationarrow_forwardA firm wishes to maintain a growth rate of 11 percent and a dividend payout ratio of 64 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 8.1 percent. If the firm also wishes to maintain a constant debt equity ratio, what must it be?arrow_forward
- A firm plans to grow at an annual rate of at least 13%. Its return on equity is 21%. Suppose the firm has a debt-equity ratio of 1/3. What is the maximum dividend payout ratio it can maintain without resorting to any external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)arrow_forwardThe most recent finical statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. If the firm is operating at full capacity and no neb debt or equity issues, what external financing is needed to support the 20 percent growth rates in sales?arrow_forwardRamble On Co. wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of 0.49, and a dividend payout ratio of 52 percent. The ratio of total assets to sales is constant at 1.34. What profit margin must the firm achieve?arrow_forward
- Using AFN formula in financial forecasting approach, given the following accounting information assuming that the firm's profit margin remains constant and the company is at full capacity. Sales = 6,000,000 Percentage increase projected for next year sales = 20% Net income this year = 600,000 Retention ratio = 50% Accounts Payabale = 1,100,000 Notes Payable = 180,000 Accrued expenses = 500,000 Projected excess funds available next year is = 200,000 Spontaneous liabilities increase is?arrow_forwardA firm wants a sustainable growth rate of 3.73 percent while maintaining a dividend payout ratio of 39 percent and a profit margin of 8 percent. The firm has a capital intensity ratio of 2. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth?arrow_forwardFinance A firm's expected free cash flows in year 1, 2, and 3 are $30 million, $35 million, and $40 million respectively. Beyond year 3 the growth is constant at 5%. The cost of equity is 11% and the Weighted average cost of capital is 9%. What is the value of the firm in year 3 (Horizon value)?arrow_forward
- I need detailed explanation for the following question If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the: A. fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.B. number of common shares outstanding will increase at the same rate of growth.C. debt-equity ratio will have to increase.D. debt-equity ratio will remain constant while retained earnings increase.E. fixed assets, the debt-equity ratio, and number of common shares outstanding will all increasearrow_forwardYou 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 Required: Use the multi-period DDM to estimate the intrinsic value of the company’s stock now, at the beginning of year 1.arrow_forwardYou 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 Required: If all of your expectations remain as shown, except that, on the last day of year 1, the required return decreases by 1%. What would be your holding period return for the year?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY