Problem 3. You are hired to analyze XYZ Inc.'s financial plan. The most recent statements show sales of $500,000 and costs of $400,000. Cash, account receivables, and inventory are 5%, 10%, and 5% of sales, respectively. Additionally, net plant and equipment equal $300,000. The firm has accounts payable equal to 10% of sales, notes payable equal to $40,000, and long-term debt equal to $80,000. The firm's equity is divided into $150,000 of common stock and $80,000 of retained earnings. Costs, current assets, fixed assets, and accounts payable are assumed to vary with sales. The firm uses a constant dividend payout ratio of 60%, taxes are equal to 21% and is currently operating at 90% capacity.
Problem 3. You are hired to analyze XYZ Inc.'s financial plan. The most recent statements show sales of $500,000 and costs of $400,000. Cash, account receivables, and inventory are 5%, 10%, and 5% of sales, respectively. Additionally, net plant and equipment equal $300,000. The firm has accounts payable equal to 10% of sales, notes payable equal to $40,000, and long-term debt equal to $80,000. The firm's equity is divided into $150,000 of common stock and $80,000 of retained earnings. Costs, current assets, fixed assets, and accounts payable are assumed to vary with sales. The firm uses a constant dividend payout ratio of 60%, taxes are equal to 21% and is currently operating at 90% capacity.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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C) Use the formula method to obtain the internal growth rate.
D) Explain why the internal growth rates obtained in B and C differ.
Transcribed Image Text:Problem 3. You are hired to analyze XYZ Inc.'s financial plan. The most recent statements
show sales of $500,000 and costs of $400,000. Cash, account receivables, and inventory
are 5%, 10%, and 5% of sales, respectively. Additionally, net plant and equipment equal
$300,000.
The firm has accounts payable equal to 10% of sales, notes payable equal to $40,000, and
long-term debt equal to $80,000.
The firm's equity is divided into $150,000 of common stock and $80,000 of retained
earnings.
Costs, current assets, fixed assets, and accounts payable are assumed to vary with sales.
The firm uses a constant dividend payout ratio of 60%, taxes are equal to 21% and is
currently operating at 90% capacity.
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