HATFIELD MEDICAL SUPPLIES
Balance Sheet 31st December, 2010 (in Millions)			Income Statement, 2010
Cash & Securities	20		Sales	2000
Accounts Receivables	290		Total Operating costs	1900
Inventories	390		EBIT	100
Total current assets	700		Interest	60
Net fixed assets	500		EBT	40
Total Assets	1200		Taxes (40%)	16
			Net Income	24
Account Payables + Accruals	100		Dividends	9
Notes payable	80		Addition to retained earnings	15
Total current liabilities	180		Shares Outstanding	10
Long term Debt	520		EPS	2.4
Total liabilities	700		DPS	0.9
Common Stock	300		Year-end Stock price	24
Retained earnings	200
Total common equity	500
Total liabilities and Equity	1200

Particulars	Hatfield	Industry
Operating costs/Sales	95%	93%
Cash/Sales	1%	1%
Receivables/Sales	14.50%	11%
Inventories/Sales	19.50%	15%
Fixed assets/Sales	25%	23%
Payables/Sales	5%	4%
Tax rate	40%	40%
Total liabilities/ Total assets	58.3%	53%
Times interest earned	1.67	5.2
Profit margin	1.20%	2.74%
Sales/Assets	1.67	2
Equity multiplier	2.4	2.13
ROE	4.80%	11.64%
P/E ratio	10	12
Payout ratio	37.50%	35%

Repeat the analysis performed for Question f but now assume that Hatfield is able to achieve industry averages for the following input variables: operating costs/sales, receivables/ sales, inventories/sales, and fixed assets/sales. Answer parts (1) and (2) of f under the new assumptions.

Parts 1 & 2

How much new capital will the firm need (i.e., what is the forecasted AFN); how does it compare with the amount you calculated using the AFN equation; and why does any difference exist? 2. Calculate the firms free cash flow, return on invested capital, EPS, DPS, ROE, and any other ratios you think would be useful in considering the situation.