Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm's balance sheet at the end of the most recent year looks like this (all numbers in millions): Cash 100 Accounts Payable 100 Inventory

Your firm's balance sheet at the end of the most recent year looks like this (all numbers in millions):

Cash 100 Accounts Payable 100
Inventory 300 Accrued expenses 100
Accounts receivable 200 Current liabilities 200
Fixed assets 1000 LTD 700
Total assets 1600 Total liabilities 900
Common stock 500
Retained earnings 200
Total equity 700

Last year, your firm had $1.5 billion in sales revenue, $450 million in EBITDA, and a 15% profit margin. Your projection is that the firm will grow its revenue at 20% each of the next three years while increasing their profitability to a 22% profit margin. You can assume for now that all assets and current liabilities will stay at their existing levels as a percent of sales.

Your firm went public last year, and has a follow-up equity offering planned next year for an additional $200 million in equity (i.e., they will issue $200 million in stock). There will be no other equity issuances and no share repurchases during the next three years. The firm will keep 50% of its earnings during this period, paying the other half as dividends. Any extra cash will be used to pay down long-term debt, which is the firms only interest-bearing liability; any additional funding needed will be obtained through new issuances of long-term debt.

Use this information to forecast the firm's next three years of common equity, retained earnings, and long-term debt, and then report the long-term debt figure at the end of year three. Answer in millions (as the above figures are), without the dollar sign and rounded to the nearest million: e.g., $45,810,031 would be 46.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions