Using the Plug: Forecasting Additional Financing Needed

Go to Blackboard under class 4 materials and use the data from the spreadsheet we

discussed in class. (The base year is in column C):

1) Use the "additional funds needed" (AFN) equation illustrated in class to find

Style's forecasted AFN under the following different scenarios (presuming

AFN is borrowed or reflects debt repaid):

growth rate = 25%

growth rate = 0%

payout ratio = 20% (with growth rate = 15%)

payout ratio = 70% (with growth rate = 15%)

interest rate = 4% (with growth rate = 15% and payout ratio = 45%)

interest rate = 20% (with growth rate = 15% and payout ratio = 45%)

2) For each scenario, what are the AFNs if cash (not Notes Payable) is the

balancing figure?

[g(A*-L*) - (EBIT)(1+g) (1-T) (1-d) +I0(1-T) (1-d)] / [1-i(1-T) (1-d)]

OBS: In the above mentioned scenarios only g, d and i are allowed to vary.

Show your calculations.

3) How does AFN vary with:

growth rate?

payout ratio?

4). Assuming that in 2017(the base year) fixed assets had been operated at only

75% capacity, under the scenario of 25% growth rate what can you say about

the AFN?

5). If Sales would increase to $50,000 what would the Fixed Assets requirement

be?

6). How would excess/deficit capacity affect the any forecasted financial ratios?