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Question 2 (25 marks) Ivana Company's (the Company') sales are expected to increase from $20 million in 2018 to $24 million in 2019. Its assets
Question 2 (25 marks) Ivana Company's (the Company') sales are expected to increase from $20 million in 2018 to $24 million in 2019. Its assets totaled $12 million at the end of 2018. The Company is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2018, current liabilities are $4 million, consisting of $1 million accounts payable, $2 million of notes payable, and $1 million of accrued liabilities. Its profit margin is forecasted to be 6%, and the forecasted dividend payout ratio is 60%. Required: a. Based on information above, calculate the additional funds the Company will need for 2019. (5 marks) b. Suppose at the end of 2018 the Company's assets had been $16 million, and assuming that all other numbers are the same, calculate the AFN again for the Company in 2019. Why is this AFN different from the one you calculated in (a) above? Explain. (5 marks) c. Assuming the Company will not be able to raise any additional funds in 2019: i. Calculate the target sales in 2019 that the Company could achieve without the need to raise fund externally. (7 marks) ii. If the management would still like to achieve the sales target of $24 million in 2019 without raising any external funding, suggest ways that the Company could do in 2019 to achieve the target sales (no calculation is needed). (8 marks)
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