Managerial Finance

a Part 5 Corporate Valuation and Governance Easy Problems 1-3 (,,'Lt AfN ESeEisr-I laz-2) AFN Equation la24) AFN Equation IntermediateProblems 4-6 $2-41 Sales Increase (12-s) 'Long-Term FinancingNeeded Broussard Skateboard's sales are expected to increase by l5o/o from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5 million at the end 0f 2013. Broussard is already at firll capacity, so its assets must grow at the same rate as projected sales. At the end o{ 2013, 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 5o/o, and the forecasted payout ratio is 40%o. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Refer to Problem 12-1. \Yhat would be the additional funds needed if the company's year- end 2013 assets had been $7 million? Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at fi.rll capacity. Why is this AFN different from the one you found iu Problem 12-1? Is the company s "capital intensity" ratio the same or different? Refer to Problem 12-1. Returrr to the assumption that the company had $5 million in assets at the end of 2013, but now assume that the company pay$ no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Why is this AFN difilerent from the one you found in Problem 12-i? Maggie's Muffins, Inc., generated $5,000,000 in sales during 2013, and its year-end total assets were $2,500,000. Also, at year-end 2013, 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 2014, 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 7%, and. its payout ratio will be 80%. How large a sales increase can the company achieve without having to raise funds externally-that is, lvhat is its self- supporting growth rate? At year-end 2013, Wallace Landscaping's total assets were $2.17 million and its accounts payable were $560,000. Sales, which in 2013 were $3.5 million, are expected to increase by 35o/o in 2014. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace fypically uses no culrent iiabilities other than accounts payable. Common stock amounted to $625,000 in 2013, and retained earnings were $395,000. Wallace has arranged to sell $195,000 of new common stock in 2014 to meet some of its financing needs. The remainder of its financing needs wiil be met by issuing new long-term debt at the end pf 2A14. (Because &e debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 57o, and 45Vo of earnings will be paid out as dividends. a. What were \Mallace's total long-term debt and total liabilities in 2013? b. How much new long-term debt financing will be needed in 2014? (Hizr: AFN - New stock = New long-term debt.)