Sales and costs are projected to grow at 30% a year for at least the next 4 years. Both current assets and accounts payable are projected torise in proportion to sales. The firm is currently operating at full capacity, so it plans to increase fixed assets in proportion to sales. Interestexpense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.50.If Growth Industries is operating at only 75% of capacity, how much can sales grow before the firm will need to raise any external funds?Assume that once fixed assets are operating at capacity, they will need to grow thereafter in direct proportion to sales. (Do not roundIntermediate calculations. Round your final answers to the nearest whole dollar amount.)Final sales The 2019 financial statements for Growth Industries are presented below.INCOME STATEMENT, 2019SalesCostsEBITInterest expenseTaxable incomeTaxes (at 216)Net incomeDividendsAddition to retained earningsCurrent assetsCashAssetsAccounts receivableInventoriesTotal current assetsNet plant and equipmentTotal assets$22,120$22,120$ 240,000170,000$70,00014,000$ 56,00011,760G44,240BALANCE SHEET, YEAR-END, 20197,00012,00021,000$ 40,000180,000220,000LiabilitiesCurrent liabilitiesAccounts payableTotal current liabilitiesLong-term debtStockholders' equityCommon stock plus additional paid-in capitalRetained earningsTotal liabilities plus stockholders' equity14,00014,000140,00015,000$1,000$220,000

Given in the question: The sales for the year 2019 is $240,000 The sales can be increased by the…

Answered: If Growth Industries is operating at…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Computer Consultants Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's MIRR? Note that a project's MIRR can be less than the cost of capital (and even negative), in which case it will be rejected. Year Cash flows r=13.00% 20.64% 18.35% 21.50% 19.32% 22.78% 0 -$1,000 1 $750 2 $600 3 $120
. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000…
Suppose the management of a firm is trying to allocate liquid assets to two accounts, one of which is riskless but pays no interest, while the other offers a risky return. Assume the rate of return r on the second account is uniformly distributed over the range [-0.5, 0.5]. Let R denote the amount currently available for allocation to the two accounts, and S denote the amount invested in the risky asset. Suppose management would like to make the next period investment value as large as possible but subject to the condition that R + Sr not fall below 95% of the original value of R too often so that if the investment falls below 95% of its original value, it should not do so more than 25% of the time. Calculate the ratio of investment and the amount available, that is, a = R
An investment has an installed cost of $565,382. The cash flows over the four-year life of the investment are projected to be $194,584, $238,318, $186,674, and $154,313. If the discount rate is zero, what is the NPV? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. If the discount rate is infinite, what is the NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. At what discount rate is the NPV just equal to zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.
A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive,and the firm’s cost of capital is 8 percent. a.) According to the internal rates of return, which investment(s) should the firm make? Why? b.) According to both the net present values and internal rates of return, which investments should the firm make? c.) If the firm could reinvest the $3,600 earned in year 1 from investment B at 10 percent, what effect would that information have on your answer to part b? Would the answer be different if the rate were 14 percent?
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…
A firm has two possible investments with the following cash inflows. Each investment costs $435, and the cost of capital is seven percent. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions. Cash Inflows Year A B 1 $ 270 $ 170 2 140 170 3 100 170 Based on each investment’s net present value, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. Investment A: $ Investment B: $ The firm should make . Based on each investment’s internal rate of return, which investment(s) should the firm make? Round your answers to the nearest whole number. Investment A: % Investment B: % The firm should make . Is this the same answer you obtained in part b? It the same answer as obtained in part b. If the cost of capital were to increase to 9 percent, which investment(s) should the firm…
You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 %, and an expected growth rate of 5% after 2003. Calculate the NPV, IRR, Payback Period. Explain how do you determining the initial cost and the terminal value? (Using Gordon Model to find the terminal)
Now that Hurd has more specifically located the source of the economic exposure, Unit B, it is considering ways to hedge this exposure. Since Unit B finances some of its operations, one idea being considered by Hurd management is a change the financial structure of Unit B to a mix of financing in dollars and financing in pounds. Note: Assume the interest rate on pounds is approximately equal to the interest rate on dollars. Career Success Tips ates, Unit B will need revenue of Unit B. TOTAL SCORE: 2/3 more fewer dollars for loan payments, which would partially offset the effect of this appreciation on the Grade Final Step
An investment under consideration has a payback of seven years and a cost of $870,000. Assume the cash flows are conventional. If the required return is 11 percent, what is the worst-case NPV? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Worst-case NPV $ 3,270,444.91 ×
Answer the following lettered questions on the basis of the information in this table: a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm?b. Explain why $20 million of R&D spending will not be optimal.c. Why won’t $60 million be optimal either?

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