Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Forecasted Statements and Ratios Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail

image text in transcribed
image text in transcribed
Forecasted Statements and Ratios Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2019, is shown here (millions of dollars): Sales for 2019 were \\( \\$ 200 \\) million and net income for the year was \\( \\$ 6 \\) million, so the firm's profit margin was \3.0. Upton paid dividends of \\( \\$ 2.4 \\) million to common stockholders, so its payout ratio was \40. Its tax rate was \25, and it operated at full capocity. Assume that all assets/sales ratios, (spontaneous 1.abilities)/sales ratios, the proft margin, and the payout ratio remain constant in 2020. Do not round intermediate calculations. a. If sales are projected to increase by \\( \\$ 48 \\) milion, or \24, during 2020 , use the AFN equation to determine Upton's projected external capital requirements. Enter your answers in mallions. For example, an answer of \\( \\$ 10,550,000 \\) should be entered as 10.55 . Round your answer to two decimal places. b. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum grawth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places. (3\\% c. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2020. Assume that all additional external capital is ralsed as a line of credit at the end of the year and is refiected (because the debt is added at the end of the year, there wil be no additional interest expense due to the new debt). Assume Upton's profit margin and dividend payout ratio will be the same in 2020 as they were in 2019 . What is the amount of the line of credit reported on the 2020 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2020 add ition to retained eamings for the balance sheet without actually constructing a full income statement.) Enter your answers in millions. For example, an answer of \\( \\$ 10,550,000 \\) should be entered as 10,55 . Round your answers to two decimal places. Upton Computers Pro Forma Balance Sheet

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions