Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to
Question:
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2012, is shown here (million of dollars)
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Sales for 2012 were $350 million and net income for the year was $10.5 million, so the firm's profit margin was 3.0%. Upton paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. Its tax rate is 40%, and it operated at full capacity. Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2013.
a. If sales are projected to increase by $70 million, or 20%, during 2013, use the AFN equation to determine Upton's projected external capital requirements.
b. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?
c. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2013. Assume that all additional external capital is raised as a bank loan at the end of the year and is reflected in notes payable (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton's profit margin and dividend payout ratio will be the same in 2013 as they were in 2012. What is the amount of notes payable reported on the 2013 forecasted balance sheets? (Hint: You don't need to forecast the income statements because you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2013 addition to retained earnings for the balance sheet.)
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
a AFN A 0 S 0 D S L 0 S 0 D S MS 1 1 payout 70 70 ...View the full answer
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves
