Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 9, Problem 2MC
Summary Introduction
Case summary:
Company H is a medical supplies company. Its stock price had been lagging its industry averages. So board of directors has decided to appoint person L is a CEO and asked him to develop the financial planning and strategic plans and
She always compares financial ratios of Company H with industry averages. If any ratio is substandard she discussed immediately with the responsible manager and needs to improve the situations.
To determine: New external capital of Company H in the year 2019 by using AFN equation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The 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?
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.)
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?
Chapter 9 Solutions
Intermediate Financial Management (MindTap Course List)
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
- You have collected the following information regarding Impi Industrial Corporation’s historical earnings per share 2012 R 12.36 2013 R 13.60 2014 R15.82 2015 R 17.80 2016 R 20.90 2017 R21. 78 Based on your analysis of Impi’s fundamentals you estimate that the firm’s earnings will continue to grow at its average historical growth rate for the next year but that in the following year, as a result of the launch of a new product the firm is currently developing, earnings will grow at a rate of 20% per year for two years. After this, you project that the earnings growth rate will decrease by 5% per year for the next two years, to its long-term sustainable rate. You project that the firm will maintain a 50% dividend payout ratio and that the appropriate market capitalization rate for Impi Industrial Corporation is 15%. What action would you take if the firm’s shares are currently trading at R620 per share?arrow_forwardYou have collected the following information regarding Impi Industrial Corporation’s historical earnings per share 2012 R 12.36 2013 R 13.60 2014 R15.82 2015 R 17.80 2016 R 20.90 2017 R21. 78 Based on your analysis of Impi’s fundamentals you estimate that the firm’s earnings will continue to grow at its average historical growth rate for the next year but that in the following year, as a result of the launch of a new product the firm is currently developing, earnings will grow at a rate of 20% per year for two years. After this, you project that the earnings growth rate will decrease by 5% per year for the next two years, to its long-term sustainable rate. You project that the firm will maintain a 50% dividend pay-out ratio and that the appropriate market capitalisation rate for Impi Industrial Corporation is 15%. What action would you take if the…arrow_forwardFor 2017, the firm is forecasting a 40% increase in sales and that its year end operating costs will decline to 60% of sales. Tax rate, interest expense and dividend payout ratio are expected to remain constant. Required:What is the projected 2017 net income?arrow_forward
- Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2015, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant? Show your work, step by step. Actual 2013 2014 Projected 2015 2016 Free Cash Flow (millions of dollars) $606.82 $667.50 $707.55 $750.00arrow_forwardYou have collected the following information regarding Impi industrula Corporation's historical earnings per share. 2012 =R12.36 2013= R13.60 2014 =R15.82 2015= R17.80 2016= R20.90 2017 = R21.78 Based on your analysis of Impu's fundamentals you estimate that the firm's earnings will continue to grow at its average historical growth rate for the next year but that in the following year, as a result of the launch of a new product the form is currently developing, earnings will grow at a rate of 20% per year for two years. After this, you project that the earnings growth rate will decrease by 5% per year for the next two years, to its long term sustainable rate. You project that the firm will maintain a 50% dividend pay-out ratio and that the appropriate market capitalization rate for Impi Industrial Corporation is 15%. What action would yoh take if the firm's shares are currently trading at R620 per share?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: Use the multi-period DDM to estimate the intrinsic value of the company’s stock now, at the beginning of year 1.arrow_forward
- Weatherford 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 the firm has historically earned 15%on equity (ROE) and has paid out 62% of earnings, and suppose investors expect similarvalues to obtain in the future. How could youuse this information to estimate the futuredividend growth rate, and what growth ratewould you get? Is this consistent with the5.8% growth rate given earlier?arrow_forwardI 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_forward
- Your firm has an ROE of 12.1%, a payout ratio of 27%, $594,200 of stockholders' equity, and $386,100 of debt. If you grow at your sustainable growth rate this year, how much additional debt will you need to issue?arrow_forwardOgier 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?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
Financial Projections for Startups Basic Walkthrough; Author: Mike Lingle;https://www.youtube.com/watch?v=7avegQF4dxI;License: Standard youtube license