Phanter a Mini Caeo 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, g=1.439%, with Excel's Goal Seek function and also algebraically, as explained below. 1. Using algebra. The self-supporting growth rate can also be found by solving the equation as shown on the 3rd row above AFN, then finding the value of g that causes AFN to equal zero. This results in the same value as we find with Goal Seek. The algebriac solution is easy if we give you the equation, but if you had to solve the AFN equation for g. you would probably find the Goal Seek solution easier. Self-Supporting g =A0L0PM(1POR)S0PM(1POR)(S0)=$1,100.00$0.00 Therefore, if the firm's ratios remain constant, the company can grow at about 1.44% without external inancing. 2. Using Goal Seek. To find the self-supporting growth rate with Goal Seok, first highlight cell B56 (which has the resulting AFN). Then, with Excel 07 or 10, on the Main Menu bar click Data> What-Af-Analysis>Goal Seek. With Excel 03 click Tools>Goal Seek. Then complete the dialog box as shown to the right (use $D$25 rather than \$E\$25 in "By changing cell"). When you click OK, Cell D25 (the sales growth rate) will change 1.382\%, which will cause Cell B56 to change to $0.00. Record the now growth rate and then return to the base case by clicking Cancel. Or, you could click OK to leave the new growth rate in Cell D25 and then ove type it with 15% in that cell to get back to the base case. Goal Seek is one of Excel's most useful features. We use it elsewhere in this chapter to find the required amount of new capital. In capital budgeting, we use it to see how high the WACC can go before the NPV becomes negative, how low the WACC must be for the NPV to be positive, how low the initial cost must be to achieve a positive NPV, how long a project must last to achieve a positive NPV, and so forth. We have worked on real world cases dealing with almost every chapter in the text, and we almost always have oecasion to use Goal Seek. We can't overemphasize its usefulness. Gorecast the financial statements using the following assumptions. (1) Operating ratios remain unchanged. 2) No additional notes payable, LT bonds, or common stock will be issued. (3) The interest rate on all debt is 10%. (4) If additional financing is needed, then it will be raised through a line of credit. The line of credit will be tapped on the last day of the year, so there will be no additional interest charges due to the line of credit. On Tab 2 we relax this assumption and assume that the line of credit is accessed smoothly throughout the (ear.) (5) Interest expenses for notes payable and LT bonds are based on the average balances during the rear. (6) If surplus funds are available, the surplus will be paid out as a special dividend payment (7) Regular dividends will grow by 15%. (8) Sales will grow by 15%. This is called the "Steady" scenario secause operations remain unchanged. The same assumptions apply to the Target scenario, except there are improvements in several areas of operations. Phanter a Mini Caeo 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, g=1.439%, with Excel's Goal Seek function and also algebraically, as explained below. 1. Using algebra. The self-supporting growth rate can also be found by solving the equation as shown on the 3rd row above AFN, then finding the value of g that causes AFN to equal zero. This results in the same value as we find with Goal Seek. The algebriac solution is easy if we give you the equation, but if you had to solve the AFN equation for g. you would probably find the Goal Seek solution easier. Self-Supporting g =A0L0PM(1POR)S0PM(1POR)(S0)=$1,100.00$0.00 Therefore, if the firm's ratios remain constant, the company can grow at about 1.44% without external inancing. 2. Using Goal Seek. To find the self-supporting growth rate with Goal Seok, first highlight cell B56 (which has the resulting AFN). Then, with Excel 07 or 10, on the Main Menu bar click Data> What-Af-Analysis>Goal Seek. With Excel 03 click Tools>Goal Seek. Then complete the dialog box as shown to the right (use $D$25 rather than \$E\$25 in "By changing cell"). When you click OK, Cell D25 (the sales growth rate) will change 1.382\%, which will cause Cell B56 to change to $0.00. Record the now growth rate and then return to the base case by clicking Cancel. Or, you could click OK to leave the new growth rate in Cell D25 and then ove type it with 15% in that cell to get back to the base case. Goal Seek is one of Excel's most useful features. We use it elsewhere in this chapter to find the required amount of new capital. In capital budgeting, we use it to see how high the WACC can go before the NPV becomes negative, how low the WACC must be for the NPV to be positive, how low the initial cost must be to achieve a positive NPV, how long a project must last to achieve a positive NPV, and so forth. We have worked on real world cases dealing with almost every chapter in the text, and we almost always have oecasion to use Goal Seek. We can't overemphasize its usefulness. Gorecast the financial statements using the following assumptions. (1) Operating ratios remain unchanged. 2) No additional notes payable, LT bonds, or common stock will be issued. (3) The interest rate on all debt is 10%. (4) If additional financing is needed, then it will be raised through a line of credit. The line of credit will be tapped on the last day of the year, so there will be no additional interest charges due to the line of credit. On Tab 2 we relax this assumption and assume that the line of credit is accessed smoothly throughout the (ear.) (5) Interest expenses for notes payable and LT bonds are based on the average balances during the rear. (6) If surplus funds are available, the surplus will be paid out as a special dividend payment (7) Regular dividends will grow by 15%. (8) Sales will grow by 15%. This is called the "Steady" scenario secause operations remain unchanged. The same assumptions apply to the Target scenario, except there are improvements in several areas of operations