1)
Weber Interstate Paving Co. had $450 million of sales and $225 million of fixed assets last year, so its FA/Sales ratio was 50%. However, its fixed assets were used at only 85% of capacity. If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?
Select the correct answer.
2) You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 70%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.
| Last year's sales = S0 | $300.0 | Last year's accounts payable | $50.0 |
| Sales growth rate = g | 40% | Last year's notes payable | $15.0 |
| Last year's total assets = A0* | $500 | Last year's accruals | $20.0 |
| Last year's profit margin = PM | 20.0% | Initial payout ratio | 10.0% |
Select the correct answer.
