2. Do problem 17-13 part a. on page 545-546 on a spreadsheet. Below are the given input Part Inputs 10% 4092 Growth rate, g:| Operating costs / Sales: Receivables/Sales: Inventories/Sales: Debt ratio: Payout ratio: Adjustable Inputs: 2008 2009 NA 91.10% 87.50% 10.00% 10.00% 20.00% 20.00% 25.78% 30.00% 60.00% 60.00% Fixed Inputs Tax rate | Interest rate 12.50% Shares outing 100.000 Pace per share $45.00 FA/Sales: 40.00% ing 17-13 17-13 alget fixed assets/ Sales ratio? ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.'s shown here. y Technologies Inc.'s 2008 financial statements are Challenging Problems 13-14 Morrissey Technologies Inc.: Balance Sheet mnologies Inc.: Balance Sheet as of December 31, 2008 Cash $ 180,000 $360,000 Accounts payable Receivables 56,000 360,000 Notes payable Inventories 180,000 720,000 Accrued liabilities Total current assets $1,260,000 $ 596,000 Total current liabilities 100,000 Long-term debt 1,800,000 Fixed assets 1,440,000 Common stock 204,000 Retained earnings $2,700,000 Total assets $2,700,000 Total liabilities and equity Morrissey Technologies Inc.: Income Statement for December 31, 2008 Sales $3,600,000 Operating costs including depreciation 3,279,720 $ 320,280 EBIT 20,280 Interest $ 300,000 EBT 120,000 Taxes (40%) $ 180,000 Net Income Per Share Data: $ 45.00 Common stock price $ 1.80 Earnings per share (EPS) $ 1.08 Dividends per share (DPS) Jorking Capital Management and Financial Forecasting Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2008 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 87.5% and increase its total debt ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2009 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that! its before-tax cost of debt (which includes both short-term and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45. a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? b. If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Part 6 Working Capital Management and Financial Forecasting Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2008 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 87.5% and increase its total debt ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2009 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short-term and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45. a. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? b. If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) 17-13 Challenging Problems 13-14 ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.'s 2008 financial statements are shown here. Morrissey Technologies Inc.: Balance Sheet as of December 31, 2008 $ 180,000 Cash Accounts payable $360,000 360,000 Receivables Notes payable 56,000 720,000 Inventories Accrued liabilities 180,000 $1,260,000 Total current liabilities $ 596,000 Total current assets Long-term debt 100,000 1,440,000 Common stock 1,800,000 Fixed assets 204,000 Retained earnings $2,700,000 Total liabilities and equity $2,700,000 Total assets Morrissey Technologies Inc.: Income Statement for December 31, 2008 $3,600,000 Sales 3,279,720 Operating costs including depreciation $ 320,280 EBIT 20,280 Interest $ 300,000 EBT 120,000 Taxes (40%) $ 180,000 Net Income Per Share Data: $ 45.00 Common stock price $ 1.80 Earnings per share (EPS) $ 1.08 Dividends per share (DPS)
