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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Please give answer for A and B
Consider the following project: Period Net cash flow 0 -100 1 0 2 78.55 3 78.55 The internal rate of return is 20%. The NPV, assuming a 20% opportunity cost of capital, is exactly zero. Calculate the expected economic income and economic depreciation in each year. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) 1 Period 2 3 Change in value (economic depreciation) (20.00) 54.55 65.46 Expected economic income
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…
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 14 percent return but would cost 16 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital b. Which project(s) should be accepted? O New machine. O Piece of equipment. %
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…
Consider the following information for Smart Products: total assets P1000; sales-P1540; net profit margin-12%; dividend payout ratio=40%; accounts payable=P308. If sales are forecast to increase 30%, the "short cut" estimate of external funds required (EFR) would be P________?
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 ×
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. -The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity. -The firm’s forecasted sales are unexpectedly increased. -The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm’s AFN? -Yes, dividends still affect a firm’s AFN even though they are paid out of after-tax earnings. -No, dividends do not affect a firm’s AFN, because they are paid…
The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($26.000 investment): Use Appendix A and Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow $ 12,000 11,000 9,000 What is the modified internal rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Internal rate of return 11.45%
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?
A company puts together a set of cash flow projections and calculates an IRR of 25% for the project. The firm's cost of capital is about 10%. The CEO maintains that the favorability of the calculated IRR relative to the cost of capital makes the project an easy choice for acceptance and urges management to move forward immediately. i. Should this project be evaluated using different standards? ii. How does the possibility of bankruptcy as a result of the project affect the analysis? iii. Are capital budgeting rules still appropriate?
Consider the following project: Period 0 1 2 3 Net cash flow −275 0 96.55 327.48 The internal rate of return is 17%. The NPV, assuming a 17% opportunity cost of capital, is exactly zero. Calculate the expected economic income and economic depreciation in each year. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

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