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1. X has the following balance sheet: Cash 10 Account Receivable 10 Inventories 10 Fixed assets 90 Total assets 120 Accounts payable 10 Notes payable

1. X has the following balance sheet:

Cash 10 Account Receivable 10 Inventories 10 Fixed assets 90 Total assets 120 Accounts payable 10 Notes payable 20 Long-term debt 40 Common stock 40 Retained earnings 10 Total liabilities & equity 120
Fixed assets are being used at 80% of capacity. Sales for the year just end 200, sales will increases 10 per year for the next 4 years. Profit margin 5%, dividend payout ratio 60%. Assume that fixed assets cannot be sold. What are the total external financing requirements for the entire 4 years, or the total AFN for the 4-year period? a. 4 b. 2 c. -0.8 (surplus) d. -14 (surplus) e. 0 2. Melody Dairy has a line of credit with its bank. The firm plans to borrow 400,000 at the rate of 10%. The bank require 15% compensating balance and the firm currently maintain 20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual financing cost to Melody of this loan. a. 11.1% b. 10% c. 11.8% d. none of the above

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