1.)Broussard Skateboard's sales are expected to increase by 25% from $9.0 million in 2015 to $11.25 million in 2016. Its assets totaled $4 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2015, 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 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.
2.) Broussard Skateboard's sales are expected to increase by 15% from $7.0 million in 2015 to $8.05 million in 2016. Its assets totaled $4 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2015, 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 3%, and the forecasted payout ratio is 70%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
mce_markernbsp;
Assume that the company's year-end 2015 assets had been $2 million. Is the company's "capital intensity" ratio the same or different?
-Select-IIIIIIIVItem 2
I. The capital intensity ratio is measured as A0*/S0. Broussard's capital intensity ratio is higher than that of the firm with $2 million year-end 2015 assets; therefore, Broussard is less capital intensive - it would require a larger increase in total assets to support the increase in sales.
II. The capital intensity ratio is measured as A0*/S0. Broussard's capital intensity ratio is lower than that of the firm with $2 million year-end 2015 assets; therefore, Broussard is more capital intensive - it would require a larger increase in total assets to support the increase in sales.
III. The capital intensity ratio is measured as A0*/S0. Broussard's capital intensity ratio is lower than that of the firm with $2 million year-end 2015 assets; therefore, Broussard is more capital intensive - it would require a smaller increase in total assets to support the increase in sales.
IV. The capital intensity ratio is measured as A0*/S0. Broussard's capital intensity ratio is higher than that of the firm with $2 million year-end 2015 assets; therefore, Broussard is less capital intensive - it would require a smaller increase in total assets to support the increase in sales.
3.) Broussard Skateboard's sales are expected to increase by 25% from $7.4 million in 2015 to $9.25 million in 2016. Its assets totaled $4 million at the end of 2015. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2015, 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 4%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.
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Why is this AFN different from the one when the company pays dividends?
-Select-IIIIIIIVVItem 2
I. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
II. Under this scenario the company would have a higher level of retained earnings which would increase the amount of additional funds needed.
III. Under this scenario the company would have a higher level of retained earnings but this would have no effect on the amount ofadditional funds needed.
IV. Under this scenario the company would have a lower level of retained earnings which would reduce the amount of additional funds needed.
V. Under this scenario the company would have a lower level of retained earnings but this would have no effect on the amount ofadditional funds needed.
4.) Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,500,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2016, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 5%, and its payout ratio will be 50%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Do not round intermediate steps. Round your answers to the nearest whole.
Sales can increase by mce_markernbsp; , that is by %.
5.) Stevens Textile's 2015 financial statements are shown below:
Balance Sheet as of December 31, 2015 (Thousands of Dollars)
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Cash
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$ 1,080
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Accounts payable
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$ 4,320
|
|
Receivables
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6,480
|
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Accruals
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2,880
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Inventories
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9,000
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Line of credit
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0
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Total current assets
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$16,560
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Notes payable
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2,100
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Net fixed assets
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12,600
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Total current liabilities
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$ 9,300
|
|
|
|
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Mortgage bonds
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3,500
|
|
|
|
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Common stock
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3,500
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|
|
|
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Retained earnings
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12,860
|
|
Total assets
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$29,160
|
|
Total liabilities and equity
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$29,160
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Income Statement for December 31, 2015 (Thousands of Dollars)
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Sales
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$36,000
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|
Operating costs
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32,440
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Earnings before interest and taxes
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$ 3,560
|
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Interest
|
460
|
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Pre-tax earnings
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$ 3,100
|
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Taxes (40%)
|
1,240
|
|
Net income
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$ 1,860
|
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Dividends (45%)
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mce_markernbsp; 837
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Addition to retained earnings
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$ 1,023
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Suppose 2016 sales are projected to increase by 15% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 9%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.
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Total assets
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mce_markernbsp;
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AFN
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mce_markernbsp;
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What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.
Notes payable (including line of credit) mce_markernbsp;
In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2016 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b?
If debt is added throughout the year rather than only at the end of the year, interest expense will be -Select-higher lower Item 4 than in the projections of part a. This would cause net income to be -Select-higher lower Item 5 , the addition to retained earnings to be -Select-higher lower Item 6 , and the AFN to be -Select-higher lower Item 7 . Thus, you would have to -Select-add in subtract from Item 8 new debt.