Define each of the following terms: a. Operating plan; financial plan b. Spontaneous liabilities; profit margin;...
Define each of the following terms:
a. Operating plan; financial plan
b. Spontaneous liabilities; profit margin; payout ratio
c. Additional funds needed (AFN); AFN equation; capital intensity
ratio;
self-supporting growth rate
d. Forecasted financial statement approach using percent of
sales
e. Excess capacity; lumpy assets; economies of scale
f. Full capacity sales; target fixed assets to sales ratio;
required level of fixed assets
Homework Answers
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Define each of the following terms:
a. Operating plan; financial plan
b. Spontaneous liabilities; profit margin;...
SHOW WORK FOR CALCULATIONS 1. Complete questions: Define each of the following terms: a. Operating plan;...
SHOW WORK FOR CALCULATIONS 1. Complete questions: Define each of the following terms: a. Operating plan; financial plan b. Spontaneous liabilities; profit margin; payout ratio c. Additional funds needed (AFN); AFN equation; capital intensity ratio; self-supporting growth rate d. Forecasted financial statement approach using percentage of sales e. Excess capacity; lumpy assets; economies of scale f. Full capacity sales; target fixed assets to sales ratio; required level of fixed assets 2. Complete problem: Premium for Financial Risk XYZ, Inc. has...
Managers use projected financial statements in four principal ways. (1) They use the projected statements to...
Managers use projected financial statements in four principal ways. (1) They use the projected statements to assess whether the firm's anticipated performance is in line with its own internal targets and with investors' expectations. (2) They use them to estimate the impact of proposed operating changes. (3) They use them to anticipate the firm's future financing needs and to arrange necessary financing. (4) Finally, they use them to estimate free cash flows, which determine the firm's overall value. Managers forecast...
A’s sales are expected to increase by 15% from $8 million in 2016 to $9.2 million...
A’s sales are expected to increase by 15% from $8 million in 2016 to $9.2 million in 2017. A’s assets total $5 million at the end of 2016. A is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016 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 6%, and...
Which of the following statements is CORRECT? a. The first, and perhaps the most critical, step...
Which of the following statements is CORRECT? a. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales. b. The capital intensity ratio gives us an idea of the physical condition of the firm’s fixed assets. c. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management’s historical performance is evaluated. d. Perhaps the most important step when developing forecasted financial statements...
Problem 2: AFN Consider the following financial information for the Royals, Inc.: In the most recent...
Problem 2: AFN
Consider the following financial information for the
Royals, Inc.:
In the most recent year, the firm had sales of $6,000 with a
profit margin of 8%. Management chose to pay out 50% of the firm’s
income to its shareholders. Royals, Inc. was operating at full
capacity.
The company expects to increase sales by 20% next year and hopes
to improve their profit margin by 2%.
Determine the company’s AFN for next year through use of the
formula:...
Green Caterpillar Garden Supplies Inc. reported sales of $820,000 at the end of last year; but...
Green Caterpillar Garden Supplies Inc. reported sales of $820,000 at the end of last year; but this year, sales are expected to grow by 7%. Green Caterpillarexpects to maintain its current profit margin of 21% and dividend payout ratio of 10%. The firm's total assets equaled $500,000 and were operated at full capacity. Green Caterpillar's balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $35,000, and accrued liabilities of $70,000. Based on the AFN (Additional...
Fuzzy Button Clothing Company reported sales of $775,000 at the end of last year; but this...
Fuzzy Button Clothing Company reported sales of $775,000 at the end of last year; but this year, sales are expected to grow by 8%. Fuzzy Buttonexpects to maintain its current profit margin of 24% and dividend payout ratio of 15%. The firm’s total assets equaled $450,000 and were operated at full capacity. Fuzzy Button’s balance sheet shows the following current liabilities: accounts payable of $70,000, notes payable of $35,000, and accrued liabilities of $80,000. Based on the AFN (Additional Funds...
2. More on the AFN (Additional Funds Needed) equation Blue Elk Manufacturing reported sales of $720,000...
2. More on the AFN (Additional Funds Needed) equation Blue Elk Manufacturing reported sales of $720,000 at the end of last year; but this year, sales are expected to grow by 9%. Blue Elk expects to maintain its current profit margin of 22% and dividend payout ratio of 30%. The firm's total assets equaled $475,000 and were operated at full capacity. Blue Elk's balance sheet shows the following current liabilities: accounts payable of $75,000, notes payable of $35,000, and accrued...
3. More on the AFN (Additional Funds Needed) equation Aa Aa E Cold Duck Manufacturing Inc....
3. More on the AFN (Additional Funds Needed) equation Aa Aa E Cold Duck Manufacturing Inc. reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 7%. Cold Duckexpects to maintain its current profit margin of 22% and dividend payout ratio of 20%. The firm's total assets equaled $475,000 and were operated at full capacity. Cold Duck's balance sheet shows the following current liabilities: accounts payable of $60,000, notes payable of...
Quantitative Problem 1: Beasley Industries' sales are expected to increase from $4 million in 2017 to...
Quantitative Problem 1: Beasley Industries' sales are expected to increase from $4 million in 2017 to $5 million in 2018, or by 25%. Its assets totaled $2 million at the end of 2017. Beasley is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2017, current liabilities are $720,000, consisting of $140,000 of accounts payable, $400,000 of notes payable, and $180,000 of accrued liabilities. Its profit margin is forecasted to be 4%,...
Problem 2: AFN
Consider the following financial information for the
Royals, Inc.:
In the most recent year, the firm had sales of $6,000 with a
profit margin of 8%. Management chose to pay out 50% of the firm’s
income to its shareholders. Royals, Inc. was operating at full
capacity.
The company expects to increase sales by 20% next year and hopes
to improve their profit margin by 2%.
Determine the company’s AFN for next year through use of the
formula:...
Green Caterpillar Garden Supplies Inc. reported sales of $820,000 at the end of last year; but this year, sales are expected to grow by 7%. Green Caterpillarexpects to maintain its current profit margin of 21% and dividend payout ratio of 10%. The firm's total assets equaled $500,000 and were operated at full capacity. Green Caterpillar's balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $35,000, and accrued liabilities of $70,000. Based on the AFN (Additional...
2. More on the AFN (Additional Funds Needed) equation Blue Elk Manufacturing reported sales of $720,000 at the end of last year; but this year, sales are expected to grow by 9%. Blue Elk expects to maintain its current profit margin of 22% and dividend payout ratio of 30%. The firm's total assets equaled $475,000 and were operated at full capacity. Blue Elk's balance sheet shows the following current liabilities: accounts payable of $75,000, notes payable of $35,000, and accrued...
3. More on the AFN (Additional Funds Needed) equation Aa Aa E Cold Duck Manufacturing Inc. reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 7%. Cold Duckexpects to maintain its current profit margin of 22% and dividend payout ratio of 20%. The firm's total assets equaled $475,000 and were operated at full capacity. Cold Duck's balance sheet shows the following current liabilities: accounts payable of $60,000, notes payable of...
Quantitative Problem 1: Beasley Industries' sales are expected to increase from $4 million in 2017 to $5 million in 2018, or by 25%. Its assets totaled $2 million at the end of 2017. Beasley is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2017, current liabilities are $720,000, consisting of $140,000 of accounts payable, $400,000 of notes payable, and $180,000 of accrued liabilities. Its profit margin is forecasted to be 4%,...
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