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ABC, Inc.’s sales are expected to increase by 15%. Their finance manager has been given the...

ABC, Inc.’s sales are expected to increase by 15%. Their finance manager has been given the task of calculating the additional funds needed to sustain this growth.

ABC, Inc. Balance Sheet ($ Millions)

Cash and Securities                                     45

Accounts Receivable                                 305

Inventories                                                  360

Total Current Assets                                  710

Net Fixed Assets                                         500

Total Assets                                              1210

Accounts Payable                                         50

Notes Payable                                               80

Accruals                                                         50

Total current liabilities                              180

Long Term debt                                          500

Total Liabilities                                           680

Common Stock                                           350

Retained Earnings                                      180

Total Common Equity                               530

Total Liab. & Equity                                 1210

ABC, Inc. Income Statement ($ Millions)

Sales                                                          2500

Total Operating Costs                             2300

EBIT                                                              200

Interest                                                        110

EBT                                                                 90

Taxes (40%)                                                  36

Net Income                                                   54

Dividends                                                       24
  1. Using the information from the balance sheet and the income statement, calculate the AFN for ABC to be able to sustain the expected 15% sales growth.
  1. What is the self-supporting growth rate that ABC Inc. is able to sustain without acquiring any external capital?

  1. What is the dollar value of the additional sales the firm is able to sustain without acquiring any external capital?
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Solution ABC, incs are expected to increase by 15% Calculate the AFN for ABC to be able , sustain the expected151. Sares groSpontaneous increases sales -> ((Alc payable +accruais)/ såles) * change in > ((50+50)/2,500)* (15 %. *9,500) 3) Covou)* (375-> ((5 412,500)*((Su-241/su)/(1,21012,500) - (100/2,500) - (15u/2:500) * (154-24) [su)) -30.0216) * 10.55) / 20.4184) -(0.04)

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