I need a 1400-1750 essay written for the case study. Prepare a 1,400- to 1,750-word response to the following case from the text::

• Ch. 12: Mini-Case (p. 519), Parts a, b, c, d, & e only. I have attached the case study and the supporting documents. The case study is a response to the answers of the questions.Formulas and work should be shownwith the essay. Please cite all work.

c. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio. Answer: Capital intensity can be termed as the dollar amount of assets required to produce a dollar of sales. The capital intensity ratio is the reciprocal of the total assets turnover ratio. The higher the capital intensity ratio, the more new money will be required to support an additional dollar of sales. Thus, the higher the capital intensity ratio, the greater the AFN, other things held constant Sales growth (g): The higher g is, the larger AFN will beother things held constant. Capital intensity ratio (A0*/S0): The higher the capital intensity ratio, the larger AFN will beother things held constant. Spontaneous-liabilities-to-sales ratio (L0*/S0): The higher the firm's spontaneous liabilities, the smaller AFN will beother things held constant Profit margin (Net income/Sales): The higher the profit margin, the smaller AFN will beother things held constant. Payout ratio (DPS/EPS): The lower the payout ratio, the smaller AFN will beother things held constant. d. Define the term self-supporting growth rate. What is Hatfield's self-supporting growth rate? Would the self-supporting growth rate be affected by a change in the capital intensity ratio or the other factors mentioned in the previous question? Other things held constant, would the calculated capital intensity ratio change over time if the company were growing and were also subject to economies of scale and/or lumpy assets? Answer: Self-Supporting growth rate is the maximum growth rate the firm could achieve if it had no access to external capital. If Hatfield's sales grow less than 4.283%, the firm will not need any external capital. The firm's self-supporting growth rate is influenced by the firm's capital intensity ratio. The more assets the firm requires to achieve a certain sales level, the lower its sustainable growth rate will be. Mini case Facts of the case study: Hatfield Medical Supplies: Balance Sheet (Millions of Dollars), December 31 Cash Accts. rec. Inventories Total CA Net fixed assets Total assets 2013 $20 $280 $400 $700 $500 $1,200 Accts. pay. & accruals Line of credit Total CL Long-term debt Total liabilities Common stock Retained earnings Total common equ. Total liab. & equity Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) $80 $0 $80 $500 $580 $420 $200 $620 $1,200 2013 $2,000.0 $1,800.0 $50.0 $150.0 $40.0 $110.0 $44.0 $66.0 Sales Op. costs (excl. depr.) Depreciation EBIT Interest Pretax earnings Taxes (40%) Net income Dividends Add. to RE Common shares EPS DPS Ending stock price $20.0 $46.0 10.0 $6.6 $2.0 $52.80 Selected Ratios and Other Data, 2013 Hatfield 90% 10% 1% 14% 20% 25% 4% 40% 8.0% 4.5% 56.0% Op. costs/Sales Depr./FA Cash/Sales Receivables/Sales Inventories/Sales Fixed assets/Sales Acc. pay. & accr. / Sales Tax rate ROIC NOPAT/Sales Total op. capital/Sales Additional Data Exp. Saled growth rate Interest rate on LT debt Target WACC Industry 88% 12% 1% 11% 15% 22% 4% 40% 12.5% 5.6% 45.0% Total liability/Total assets Times interest earned Return on assets (ROA) Profit margin (M) Sales/Assets Assets/Equity Return on equity (ROE) P/E ratio Hatfield 48.3% 3.8 5.5% 3.30% 1.67 1.94 10.6% 8.0 2014 10% 8% 9% a. Using Hatfield's data and its industry averages, how well run would you say Hatfield appears to be in comparison with other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer, and point to various ratios that support your position. Also, use the DuPont equation (see Chapter 7) as one part of your analysis. Hatfield is less profitable, uses its assets less efficiently, and has too much leverage. Du Pont ROE Hatfield Industry M x 3.30% 4.99% Sales/Assets 1.67 2.04 x Assets/Equity 1.94 1.58 = = = ROE 10.6% 16.1% b. Use the AFN equation to estimate Hatfield's required new external capital for 2016 if the sale growth rate is 10%. Assume that the firm's 2015 ratios will remain the same in 2016. (Hint: Hatfield was operating at full capacity in 2015.) Data for AFN Method Growth rate in sales (g) Sales (S0) Required assets (A0*) Spontaneious liabilities (L0*) Forecasted sales (S1) Increase in sales (S = gS0) Profit margin (M) Assets/Sales (A0*/S0) Payout ratio (POR) Spont. Liab./Sales (L0*/S0) 10% $2,000 $1,200 $80 $2,200 $200 3.30% 60.0% 30.3% 4.0% Industry 36.7% 8.9 10.2% 4.99% 2.04 1.58 16.1% 16.0 AFNHatfield = Add'l Req'd Assets (A0*/S0)S = = $120.0 AFNHatfield = Spontaneous liabilities (L0*/S0)S $8.0 Add'n to RE M S1 (1-POR) $50.6 $61.40 million c. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio. Answer:in word d. Define the term self-supporting growth rate. What is Hatfield's self-supporting growth rate? Would the self-supporting growth rate be affected by a change in the capital intensity ratio or the other factors mentioned in the previous question? Other things held constant, would the calculated capital intensity ratio change over time if the company were growing and were also subject to economies of scale and/or lumpy assets? Answer: In word Self-Supporting Growth Rate. This is the maximum growth rate that can be attained without raising external funds, i.e., the value of g that forces AFN = 0, holding other things constant. We found this rate, ith Excel's Goal Seek function and also algebraically, as explained below. 1. Using algebra. The self-supporting growth rate can also be found by setting the AFN equation to zero and then solving for g. M(1 - POR)(S0) Self-Supporting g == A0* - L0* - M(1 - POR)S0 M= POR = 1-POR = S0 = A* = L* = 3.30% 30.3% 69.7% $2,000 $1,200 $80 M(1 - POR)(S0) Self-Supporting g = = A0* - L0* - M(1 - POR)S0 $46.00 $1,074.00 = 4.283% 2. Using Goal Seek. To find the self-supporting growth rate with Goal Seek, select Data, What-If Analysis, and Goal Seek; then choose cell with the AFN (B93) as the value for the "Set Cell" area of the Goal Seek dialog box, choose 0 as the value for the "To Value" area of the dialog box, and choose the cell with the growth rate (C54) as the value for the "By Changing Cell" area of the dialog box. Then hit OK. e. Use the following assumptions to answer the questions below: (1) Operating ratios remain unchanged. (2) Sales will grow by 10%, 8%, 5%, and 5% for the next four years. (3) The target weighted average cost of capital (WACC) is 9%. This is the No Change scenario because operations remain unchanged. Inputs for the forecast are shown below. You can change inputs in blue. You can show the original scenario by going to Data, What-If Analysis, Scenario Manager, and select the scenario named No Change. Scenario: No Change Inputs Sales growth rate: Op. costs/Sales: Depr./FA Cash/Sales: Acct. rec. /Sales Inv./Sales: Actual 2013 90% 10% 1% 14% 20% Forecast 2014 10% 90.0% 10% 1% 14% 20% 2015 8% 90% 10% 1% 14% 20% 2016 5% 90% 10% 1% 14% 20% For inputs: 2017 Error Check 5% Ok 90% Ok 10% Ok 1% Ok 14% Ok 20% Ok FA/Sales: AP & accr. / Sales: Tax rate: Rate on all debt Div. growth rate: Target WACC 25% 4% 40% 5% 25% 4% 40% 8.0% 10% 9% 25% 4% 40% 8% 10% 25% 4% 40% 8% 10% 25% 4% 40% 8% 10% Ok Ok Ok e. (1) For each of the next four years, forecast the following items: sales, cash, accounts receivable, inventories, net fixed assets, accounts payable & accruals, operating costs (excluding depreciation), depreciation, and earnings before interest and taxes (EBIT). Scenario: No Change Net sales Cash Accounts receivable Inventories Net fixed assets Accts. pay. & accruals Op. costs (excl. depr.) Depreciation EBIT Actual Forecast 2013 2014 $2,000 $2,200 $20 $22 $280 $308 $400 $440 $500 $550 $80 $88 $1,800 $1,980 $50 $55 $150 $165 2015 $2,376 $23.76 $333 $475 $594 $95 $2,138 $59 $178 2016 $2,495 $25 $349 $499 $624 $100 $2,245 $62 $187 2017 $2,620 $26 $367 $524 $655 $105 $2,358 $65 $196 e. (2) Using the previously forecasted items, calculate for each of the next four years the net operating profit after taxes (NOPAT), net operating working capital, total operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year imply about the need for external financing? Compare the forecasted ROIC compare with the WACC. What does this imply about how well the company is performing? Scenario: No Change NOPAT NOWC Total op. capital FCF Growth in FCF ROIC Actual 2013 $90 $620 $1,120 Forecast 2014 $99 $682 $1,232 $13 8.0% 8.0% 2015 $107 $737 $1,331 $8 -164% 8.0% 2016 $112 $773 $1,397 $46 447.1% 8.0% 2017 $118 $812 $1,467 $48 5.0% 8.0% e. (3) Assume that FCF will continue to grow at the growth rate for the last year in the forecast horizon (Hint: 5%). What is the horizon value at 2019? What is the present value of the horizon value? What is the present value of the forecasted FCF? (Hint: use the free cash flows for 2016 through 2019). What is the current value of operations? Using information from the 2015 financial statements, what is the current estimated intrinsic stock price? Scenario: No Change Horizon Value: _= ( _ = (+_))/(( _)) Value of Operations: Present value of HV + Present value of FCF Value of operations = $1,261 $893 $64 $958 Value of operations + ST investments Estimated total intrinsic value All debt Preferred stock Estimated intrinsic value of equity Number of shares Estimated intrinsic stock price = $958 $0 $958 $500 $0 $458 10 $45.75 Definitions: NOPAT = EBIT(1-T) NOWC = (Cash + accounts re Total operating capital = NOW FCF = NOPAT Change in to ROIC = NOPAT/Total operatin 1-T) + accounts receivable + inventories) (Accounts payable & accruals) apital = NOWC + Net fixed assets Change in total operating capital Total operating capital